like the fright of theater-goers crowding toward the door at
the cry of fire.
The maintenance of the government's independent treasury contributed
to the difficulties by causing the irregular withdrawal of money from
circulation and thus depleting bank reserves in periods of excessive
government revenues and by returning these funds into circulation only
in periods of deficient revenues. Efforts to modify this system by
a partial distribution of the public moneys among national banks had
resulted, it was charged, in discrimination and favoritism in the
treatment of different banks and of different sections of the country.
Sec. 6. #Inelasticity of credit#. Our banks, considered both separately
and collectively, were unable to increase their loaning powers
quickly and easily to respond to business needs. The need of greater
elasticity of credit was felt in the more or less regular seasonal
variations within the year, and in the more irregular variations
in cycles of years from periods of prosperity to those of panic and
depression in business. The inelasticity was necessitated by illogical
federal and state laws restricting absolutely the further extension of
credit when the reserves fell below the percentage of deposits (15 or
25 per cent) fixed by law. Reserves thus could not legally be used to
meet demands for cash payments at the very time when most needed.
This feature has been likened to the rule of the liveryman who always
refused to allow the last horse to leave his stable so that he would
never be without a horse when a customer called for one. The refusal
of credit by the banks at such times when they still had large amounts
of cash in their vaults increased the need and eagerness of the public
to draw from the bank all the cash they could, and often precipitated
the insolvency of the banks. Clearly some means were needed to enable
the loaning power of the individual banks to be increased at such
times, so that no customer with good commercial paper need fear to
be refused a loan, even tho the rate of interest might have to be
somewhat higher for a few days or weeks than the normal rate.
Our bond-secured bank notes lacked almost entirely the quality of
elasticity needed to meet these changing business needs.[6] Their
value being dependent primarily upon the amount and price of United
States bonds, they might be most numerous just when least needed as a
part of our circulating medium.
Sec. 7. #Periodical
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