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President The Sperry & Hutchinson Company and Former President of
the Investment Bankers' Association of America

(EDITOR'S NOTE: The conclusions presented in the following article are worthy of particular consideration at this time. The author emphasizes the responsibility which rests not only upon investment and commercial bankers, but upon the Government and American citizens in general in regard to the natural development of domestic resources, the rehabilitation of railroad systems and improving business relations. This admonition is especially timely in view of the discussion as to how far American liquid or surplus wealth shall be used in financing foreign requirements.)

No one can well deny that the United States is the richest country in all the world today in liquid wealth and in organization of men and capital for the production of everything the world wants, either in war or peace. This in itself is a matter of great pride to every American citizen, but also a large responsibility, both to our Government and our citizenship. Add to it the apparent fact that the vastness of the war has made this practically the only country that can contribute to the world's progress and we have the prouder results of our neutrality and even a greater responsibility.

Our Domestic Responsibilities

This is perhaps the long range perspective, and while it should not and cannot be overlooked, yet neither should we overlook some of our domestic responsibilities, and must they not receive first consideration if the larger responsibility is to profit us and we are to render the greatest aid to others? Let us assume that our confidence in the business world will not be fully established until all danger of our being drawn into the war is entirely past. The question every metropolitan banker asks is: "How far should we lend our surplus, even if by so doing the money is kept in America and the business of America profits thereby?" The answer is, loans are credits, (not money,) and beyond a certain safe point we cannot extend credit. Money is the actual medium of redemption and will only support so much credit. If that credit is used by obligations of foreign governments, due to a prolonged war and continued financing of their purchases from America, we will be, loaded with foreign credit and have a limited amount of money for home use. Just now our domestic demand is low, but what will it be as the war goes on or when the war is over?

Demand for Gold Accentuated

You say one source of relief could be the drawing of gold from abroad. But it seems to me they will require their gold in their refinancing abroad when the war is over equally as much as they do now and release it almost as reluctantly, and this condition will be accentuated as the war is prolonged. Certainly anyone using all his capital prefers to renew a note rather than to pay it, and any credit extended to a war nation now will almost certainly be renewed in some form at maturity.

This is the attitude today of the thoughtful and independent investor. Opinion generally is in accord that we will have the impetus of foreign trade for several years to come, whether in peace or war, as a new factor in our financing. We also know we have only so much gold in the world for use as a medium of redemption, and under conditions, whether of war or peace, it will carry only so much credit.

If the war is prolonged and the credit is used to finance the war, where will the credit necessary to finance our domestic demands, our railroads, our public service companies, and our great industrial enterprises come from? If the war stops within a year the strain from abroad will be only less severe because of the difference in the price between war credit and peace credit. It seems to me for some several years the demand from abroad must continually interfere or compete with the demand at home, which will increase with confidence restored, and that in this the banker and our Government itself has a new problem and a very large responsibility.

Our Increased Home Requirements

Let us review home demands as they exist. Besides increased annual governmental expen

ditures we are largely of the opinion we should increase our expenditures by $500,000,000 for preparedness. Spreading the expenditure over three or four years is small relief, if any. There is likewise a very large annual Government deficit to be provided.

In business four years of light trade and slack industry has prevailed with little ambition for expansion. Railroad mileage has not for fifty years shown so small an increase annually as for 1915. Terminals have become outgrown and congested and equipment is exhausted at the rate of ten per cent. a year. Public service companies everywhere discontinued extensions and many reduced amounts required for improvements and betterments to the lowest point, and in some cases at the risk of public disapproval by commissions, councils and the community served.

Industrial works in many instances were closed and all have not yet reopened and recovered. With our increased trade and restored confidence, which peace will bring, we shall require new machinery, new buildings, more cars and railroads, better and larger terminals, and a larger capital and credit for domestic use. The prosperity that the war has brought us is something, but the increase in business in all lines that peace will bring will be even greater and more substantial because backed by a market, our confidence, and our natural resources. Responsibility of Investment and Commercial Bankers

I do not desire to overdraw the picture, nor do I doubt of its solution. I desire to impress those who may read this with the banker's responsibility to his home demands, and I believe it is a responsibility of the investment banker as well as the commercial banker.

Credit expands and contracts rapidly in this country-in a year who knows what facilities we will have to supply them if foreign loans and our own stocks and bonds held abroad are provided for? Your reply is credit will be given the one who pays the highest rate; that money or credit is a commodity that bankers deal in at the highest rate obtainable. If so, all American industries will find competition stronger and stronger and interest rates higher and higher until the cost of operation and production shows small or no profit, or an advance in prices at the expense of the consumer. Today there are many critics of railways who would gladly pay anything to have their traffic moved, and who suffer inore in one year from stoppage of trade than in many years from overpayment of railway charges.

Railway Facilities Require Expansion
This trouble briefly analyzed, in my way of

thinking, should be stated about like this: The trouble with the railways was that at one time they made too much money in some ways alleged to be wrong. The trouble with railway regulation is that after twenty years it deprives the country of railway facilities which are an indispensable factor of prosperity. It also impedes our national defense, for railroads are all important for carrying on a war.

What is true of railroads is in a degree true of our regulation of waterways and our public service. The plea that regulation is not intended to produce confusion is idle. The results are our present condition, while regulation remains a theory and is still asking legislation for its perfection. The point I want to make is that every State and the Federal Government also have much to do with our domestic prosperity and our ability to secure credit, and that it is time to recognize that it is not a function of Government to decide questions of business discretion. Their best settlement is in the market where the decision is impersonal and no complaint can be laid against any individual.

Some Fallacies Regarding Regulation of
Railways and Utilities

I am frank to confess that intelligent regulation appeals to me, but our experience warrants the conclusion that our efforts to regulate to date has been inflexible to changing conditions. That business has its tides, its booms, its slumps, needs no proof. As practiced today Government regulation denies railways an increase of rates when there is a business boom, and allows it, if at all, when there is a reaction.

Again, we have proceeded too long with the theory that any rate, even for money, that was reasonable at all times was discoverable. The thing we have not learned is that when our home supply is now exhausted we cannot by paying a fair price get it longer from foreign nations. The reasonableness of any rate, railroad, public service, merchandise, banker's, or what it may be, should alter as conditions alter, and in view of a new condition, new demands, enlarged responsibility and a greater opportunity. Are our statesmen willing to recognize this new condition by giving it any preference or removing any barriers from trade, railroad and public service operation? Will the several Commissions, State and Federal, ever be able to recognize and apply a statute to business changes? If they cannot how can we make most of an opportunity that may never come again? Not by increased wages, increased interest and taxes, increased raw material, that must increase the cost of living to the consumer (already high at home) still

higher, and place our products as to price beyond the ability of a more or less impoverished foreign population.

Within our borders we cannot afford to put our instruments of production in bondage. Our railroads, for instance, are vital to us, and their prosperity to ours. We cannot afford to hold them down to profits so small as to keep them in constant dread of being unable to meet the demands upon them. That restricts at once their purchasing power to the detriment of industry, and their power to perform their normal service, to the detriment of the whole country. They are properly brought under public regulation, but public regulation will be worse than foolish if it weakens the railroads financially, with the inevitable result of lessening their effectiveness as producers of the second most vital of all modern necessitiestransportation.

Co-ordination in Government and Private

We must co-ordinate our governmental with our private activities. We must seek to lessen waste in all directions, and to get the most out of the country's natural resources in material and men. We should strive to render ourselves independent of other countries, for one thing, as a means of bargaining with other markets to greater advantage.

We need even greater organization than we have yet attained, but organization in fact as well as in name, designed to increase efficiency, and not under that cloak to destroy competition. A very practical application of this thought lies in the proposal for the establishment of joint-selling agencies for the development of export trade. It is thought that a change in the Sherman law is needed for this. If so, here is one very practical direction in which the Government can co-operate with private business. Many others may present themselves as time goes on, and each should be dealt with on the high plane of the country's good. That ought to be all the easier now that the country is becoming conscious of the possibilities of its new-found place in the world's trade.

A Time for Broader and Clearer Vision I appeal to every reader of this article if it is not time our business interests in America demanded and received consideration, at least reciprocity, at the hands of its own Congress and State law-making bodies, and if it is not possible that our efforts at regulation have been overdone and will to some degree impede our progress? To be a world power, to think and protect America first, means a business man of the fair and honest type and

the broader and greater vision, who shall be found wielding the power of regulation on the part of the Government as well as for the corporation in a co-ordinate manner. For several years not only individuals but the nation have felt a lack of income and the end is not yet we are told. We have still to face the full and final results of a reduced tariff, of increased taxes, and of a drop in production abroad; like, wise in our imports and export duties, and our vast increasing expenditures for whatever purpose must come from our own thrift. We cannot, therefore, afford to be extravagant in using our surplus in granting foreign credit or narrow in our governmental regulation of our home industries and succeed.

Annual Trust Company Banquet February 25, 1916

The decision to change the date of holding the annual banquet of the trust companies of the United States during the latter part of February instead of the first week in May, as customary heretofore, meets with general approval. The change will stimulate an even larger attendance than in the past and interest will be more keen. The next banquet will therefore be held at the Waldorf-Astoria, New York on Friday evening, February 27th. Invitations are being sent out by Secretary Philip Babcock of the Trust Company Section of the American Bankers' Association under the auspices of which organization the banquet will be held. Requests for reservations should be made early to the secretary in order to assure good places. Last year the attendance was nearly 700 and the eminent character of the speakers will doubtless make the forthcoming occasion the most representative in the history of trust company assemblies.

Central Trust Company of New York Gains Seventy-two Millions Deposits

The December 31, 1915 report of the Central Trust Company of New York shows that deposits have increased during the year from $103,407,353 to the total of $175,367,086 with an increase in the volume of resources from $123,806,174 to $197,489,870. The capital stock is $3,000,000 and surplus $15,000,000. Undivided profits of $2,502,200, with the dividend payable January 3, 1916, charged to profit and loss and not included in statement, represents an increase in that item of $1,667,000 since the official statement of December 24, 1914. The Central Trust Company has also experienced gratifying success in the conduct of the new branch office at 42d street, corner Madison avenue.




Chief of the Bureau of Foreign and Domestic Commerce, Department
of Commerce, Washington, D. C.

Now that prosperity has been fully established and the suspense and anxiety of the fall of 1914 have been removed there is an increasing tendency to look forward to the day of reckoning; to the day when war orders will be discontinued and our industries brought once more into competition with the manufacturing centers of Europe; to the day when it will be decided definitely just how wisely our bankers, our manufacturers, our business men, have provided for the future during these days of unprecedented opportunity. For I believe it is well within our power to make effective provision against any serious reaction when peace is declared, just as it is possible to let things drift until a disastrous panic will be inevitable.

Foresighted men are now studying the uses to which our present surplus can best be put, for it is generally conceded that the present enormous favorable balance of trade, with its consequent influx of gold from Europe, may in itself be dangerous if wise provisions are not made for the future. Some general understanding must be reached on the following questions: How much gold must be kept in reserve to meet the demand from abroad when peace is declared? What is to be done with the gold over and above the total needed for development and expansion here at home? What are the best foreign investments for our surplus capital?

Foreign Investment Necessary to Permanent Trade Expansion

Probably authorities will not agree exactly upon any of these problems. It is not at all necessary that they should. But certain limits, certain broad and sane limits, must be agreed upon tacitly. The least difference of opinion seems to exist on the question of investing American capital in the comparatively undeveloped countries which have in the past depended entirely upon Europe. Such invest

ment will not only serve to assist the expansion of our foreign trade, but will serve splendidly as an outlet for surplus gold that would lead only to inflation and increased cost of production if kept at home. With two such valid reasons for seeking investments abroad, it is not surprising that men are studying investments in far-away fields who never before looked beyond the boundaries of Canada and Mexico. The effect such investments must have on American exports is so far-reaching that it will be worth while to glance at a few statistics showing what such markets meant to us before the war, and the effect the war is having

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