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are legal tender, and who is also the agent of the Government in time of panic. In fact we might get a State Bank. If the clearing banks agree upon some course, which leads them to keep a greater percentage of cash unemployed there still remains the difficulty of bringing responsibility home to all the Banks.
Probably some of the weaker might, in case of pressure to alter their methods, solve the question by seeking amalgamation with a larger institution. The point is to get bankers to keep a larger proportion of cash somewhere, and granting the need for this larger provision, means should if possible be devised to ensure an acceptance of an individual and a collective obligation. In business the line of least resistance is often best. We should aim at avoiding elaborate schemes difficult to understand and difficult to carry out, which may also in working develop difficulties unsuspected by their authors. It is probable that legislation to compel the accepting of responsibility may follow our next crisis if we have not beforehand set about the business. A compulsory publication of balance sheets showing separately “cash on hand and at the Bank of England,' and short notice,” would do something, but I fear that in all cases such publication would not be sufficient. But compulsory returns every three months to an authority to be set up, showing the daily percentage to deposit liabilities of cash on hand and at Bank of England might do more, especially if accompanied by penalties.
That is to say—if the proportion of cash in hand and money at the Bank of England had fallen for a month below a fixed percentage, interest at 5 per cent. on the average deficiency should be paid over to the Inland Revenue department. By fixing the maximum percentage, say at 15 per cent. and insisting that it should once in three months be reached, and by allowing a variation down to 10 per cent. free of penalty, there would be preserved the element of elasticity, and a substantial inducement to keep loose cash. To let reserves fall too low is reprehensible, and the offence should be penalised. But should we not find in practice that, once the habit of keeping reserves was formed, helped by publicity and the inducement of self-interest, the system would work automatically ?
Habit is strong—we need to break present habits and bring up the coming generation of bankers to new ones. Again the point is, keep cash somewhere. Personally, I prefer that cash reserves should be kept in Bank of England notes. We use them habitually, they are legal tender, the public understand them ; in
case cash is wanted, for large amounts, it will not be gold, but it will be Bank of England notes. Practical, small, everyday considerations determine this matter. wanted £10,000 in cash, even in a crisis he would hardly bring a wheel-barrow to take away 10,000 sovereigns. But would the notes be wanted? The possession of cash would inspire confidence. Bank of England notes are practically State notes. They are based as to £16,800,000 on a debt due by the nation to the Bank of England—as to anything beyond that amount in gold.
A central stock of gold implies free money, unemployed money. We propose to ask all the banks in their own individual interest, and in the interest of the State, to keep 15 per cent. or a percentage of cash-gold-unemployed. That is the banking problem.
But this is not all; we can see, the world knows, that the Bank of France holds 121 millions of gold, that the Bank of Russia holds 93 millions, and the Imperial Bank of Germany 45 millions, and that, broad-based upon these vast accumulations, the national finance of those countries is safe, even if a few millions are drawn out to pay the foreign debts of the moment.
We are differently placed-our system is unique-insular. We have many banks, some great, some small. How can each of them preserve that individual freedom in the management of its resources which is implied in a separate existence, and at the same time, let its reserves go to swell the grand national total of the central stock of gold?
One solution seems to me simple. Keep reserves in Bank of England notes. If the banks had 117 millions cash in hand, some 60 millions of it, under such a scheme, would go into the issue department of the Bank of England, or if some lower scale were adopted there would be a proportionately smaller amount held. We should in this mode show the central stock of gold—the free cash to meet sudden calls; the key-stone of English finance would stand clearly visible. No rush for 3 or 4 millions would cause alarm. It is free cash unemployed—visible, that is wanted. Pray let me reiterate. If the banks held their reserve in Bank of England notes, they would have an absolute control of the money, and the Bank of England, as agent for the State, would take care of the gold, but as banker the Old Lady of Threadneedle Street would have no concern, part or lot in the control of these reserves.
We often speak of the effectiveness or ineffectiveness of the control of the Bank of England over rates for money; that
controlling power exists, because the bank has in possession the only large store of loanable cash. What would be the effect of a large addition to the cash provision of the banks, individually and generally, and of their holding a large store of unemployed cash ?? Is it not probable that if each bank kept its reserve in notes (but this must be true of keeping a percentage in any form), changes in discount rates would follow the natural course of the market, that is to say, the possession of surplus means would lower rates, the effort to maintain declining reserves caused by a foreign demand, or a foreign drain, would bring more demands upon the market, and thus cause a gradual hardening in the value of money? This is a natural way of dealing with differences in the supply of loanable capital.
The banks would endeavour to maintain the percentage of reserve, and this would probably cause rates to move with evenness and regularity, and at the same time, act on the exchanges more quickly. You restore by united action the banking control over the foreign exchanges which the Bank of England is too small herself to secure. No drastic change can be made in a moment: but examination of the problem, with the resolve to find and prudently apply a remedy, can begin. We can get the gold if we pay for it. Foreign Governments and banks have solved similar problems; why not English bankers ? I have previously suggested that the Bank of England will naturally be taken into council in any arrangements to be made, and in connection with the scheme for holding reserves in notes, her co-operation would be invaluable. As gold came on to the market the Bank of England could assist the banks to buy it as the basis of reserve.
I have asked three main questions, viz. :(1). Do we need a larger stock of gold ? and on the evidence I
have answered in the affirmative. (2). Where should the central stock of gold be kept ? I have
suggested an answer, viz. : In the Issue Department of
the Bank of England. (3). Do bankers generally keep a sufficient percentage of loose
cash ? and I have answered that in the negative, and
given reasons. We need to weigh the possibilities of what Mr. Goschen called our condition of “unpreparedness." We should aim at keeping our free market for gold on so broad a basis, that the unemployed money of the nations shall continue to come here for employment and with the certainty that when it is asked for it will be repaid.
We should aim at such a condition of affairs, that the ordinary employment of money in the short loan market and on the Stock Exchange shall not on the first call for a few millions need to be disorganised by the withdrawals of the banks; and that it shall not be the necessities of bankers themselves that induce commercial distrust.
The possession of adequate cash reserves means this, that in times of crisis or of panic, the first anxiety of the banker would be, not his own security, but to ensure, by prompt action in helping his own circle of customers, the stability of the mercantile community, which he would be able to calm because he had in his possession unemployed money which he was willing, and was able to use in support of credit during the always brief madness of panic.
To keep adequate cash reserves is a duty that bankers owe to the State.
GEORGE H. POWNALL
The Elements of Sociology. A Text-book for Colleges and
Schools. By FRANKLIN HENRY GIDDINGS, M.A., Ph.D., Professor of Sociology in Columbia University, New York. (New York: the Macmillan Company.)
PROFESSOR GIDDINGS' “ Elements of Sociology” is written “in response to a persistent and growing demand for an untechnical but scientific and reasonably complete statement of sociological theory, for the use of college and school classes." I do not quite know how much "untechnical” is intended to qualify the meaning of “scientific," or “reasonably” the meaning of “complete": but both qualifications must be taken to be very large before we can say that Mr. Giddings' book satisfies the demand described. I do not mean to deny it important merits. It is throughout intelligent, independent, suggestive, and manifests an unaffected enthusiasm for social progress, and on the whole a just and sober apprehension of the conditions and essential features of such progress.
So far as the aim of an elementary treatise on Sociology is to habituate the reader to take the point of view of the science, and to give him useful general ideas, many of which will be more or less unfamiliar, the book seems to me likely to achieve the desired result. But if the aim be to teach precision of thought and sound methods of reasoning on this difficult and complex subject, I can hardly regard it as successful. The analysis is too loose, the generalisations too hasty, there is too much disposition to propound doubtful conjectures as established truths; and, here and there, I find what seem to me curious misrepresentations of familiar historical facts.
I may add that the peculiarities of the author's fundamental view render the book specially ill adapted to provide the intending student of Political Economy with a satisfactory groundwork of social doctrine before he proceeds to his narrower studies of economic relations and laws. The “unit of investigation," in Mr. Giddings' view of Sociology, is the individual “socius,” and the essential characteristic of a socius is that he is conscious of and cultivates “ like-mindedness" with other "socii." Accordingly, throughout the work, a one-sided attention is