A Brief History of Panics | Page 7

by a general taste
for speculating in order to grow rich at once, by a growing luxury
leading to excessive expenditures, a very large amount of discounts and
loans and bank notes [Footnote: Our recent banking history has proved
rather an exception to this law as far as bank notes are concerned,
because of the obviously unusual cause of sudden and enormous calling
in of government bonds, the basis of bank-note issue.] and a very small
reserve in specie and legal-tender notes and poor and decreasing
deposits.
On the other hand, the lowest point of depression following a panic is
accompanied by the converse of the symptoms just enumerated.
Bank balance sheets reflect in cold figures the result of the above
influences. Prices being high, and discounts and loans large in
proportion to deposits, and having steadily increased for years, danger
is near; further, when discounts and loans are not only large in
proportion to deposits, having increased steadily for years, and then
suddenly fallen off noticeably for a considerable time, only to increase

again, danger is imminent.
On the other hand, a steady and radical reduction of loans and discounts,
following a panic and extending until new enterprises are very scarce,
till prices are very low, till there is wide-spread idleness among
workmen, a decrease in salaries and in interest rates, when the public is
wary and speculation dead, and expenditures are cut down as far as
possible, may be taken to mean a rapid and continued resumption of
every prosperous business: but if the above process is only partially
performed, renewed trouble must result;--in other words, liquidation to
really be helpful (to congested business) must be thorough.
A study of the first of the following tables, "National Banks of the
United States," illustrates the above generalization. It is unnecessary to
mention that 1878, 1884, and 1890 have been the last three panic years.
But it is very necessary in studying this table, to bear in mind that its
figures are taken from the standing of the banks at the first of the year,
while the panics generally occurred later in the year: the last two, for
instance in the second and fourth quarter, respectively. The third and
fourth tables will give more exact figures in this connection. Table Two,
dealing with State Banks, is given merely to round out our banking
history as told in figures.
The increase or diminution of deposits of course reflects a confident
and successful, or a panicky and impoverishing, state of general
business.
TABLE NO. 1.--NATIONAL BANKS OF THE UNITED STATES
_________________________________________________________
________________ Percentage of Difference (over or under) | between
Deposits and Loans and Discounts. |
_________________________________________________________
_______ \ | Difference between Deposits and Loans and Discounts.
(Millions) | |
_________________________________________________________
\ | | Percentage "Working Capital" exceeds Loans and Discounts.| | |
____________________________________________________ \ | | |
Excess of Capital (Surplus, Undivided Profits, | | | | and Deposits) over
Loans and Discounts. (Millions) | | | |
_____________________________________________ \ | | | | |
LOANS | "WORKING CAPITAL." | | | | | | AND

|__________________________| | | | | | DISCOUNTS.| Capital. | | | | |
|______ \ | / ___________________| | | | | | | | | Undivided Profits | | | | | | |
| | and Surplus, etc. | | | | | YEAR|MONTH.| | | / _____________| | | | | | | |
| | Deposits | | | | | | | | | | / ______| | | | | | | | | | |TOTAL.| | | | |
===================================================
======================= | |-----------In Millions.----------| | | | |
1863|Oct. 5| 5.464| 7.188|0.128| 8.497|15.913|10.347|65.4|+3.031|35.6
ovr| 1864|Jan.
4|10.666|14.740|0.432|19.450|34.622|23.956|69.2|+8.784|45.1 " |
1865|Jan. 2| 166 | 135 | 20 | 183 | 338 | 152 |47.7|+ 17 | 9.2 " | 1866|Jan.
1| 500 | 403 | 71 | 522 | 996 | 496 |49.8|+ 22 | 4.2 " | 1867|Jan. 7| 608 |
420 | 86 | 538 | 1064 | 456 |42.8|- 50 | 8.9 und| 1868|Jan. 6| 616 | 420 |
101 | 534 | 1055 | 439 |41.6|- 82 |15.3 " | 1869|Jan. 4| 644 | 419 | 116 |
568 | 1103 | 559 |46.4|- 76 |13.3 " | 1870|Jan.22| 688 | 426 | 124 | 546 |
1096 | 408 |37.2|- 142 |26 " | 1871|Mch.18| 767 | 444 | 140 | 561 | 1145 |
378 |33. |- 206 |36.7 " | 1872|Feb.27| 839 | 464 | 147 | 593 | 1204 | 365
|30.3|- 246 |41.4 " | *1873|Feb.28| 913 | 484 | 163 | 656 | 1303 | 390
|29.9|- 257 |29.1 " | 1874|Feb.27| 897 | 490 | 173 | 595 | 1258 | 361
|28.6|- 302 |52.4 " | 1875|Mch. 1| 956 | 496 | 182