Money & People

When the unthinkable finally happened, when the banking heart of the country. New York, stopped beating momentarily last week, the eyes of all U. S. bankers turned towards Washington to see what would be done. Meantime, both inside and outside of the banks, life went on. Inside, it was an education for bankers who were not in business in 1907. Emergency laws made new textbooks on which they had to cram like freshmen.

Cash Box Deposits. Most important innovation in banking technique was the plan, adopted in Ohio and several other states, of freezing 90% to 99%, of deposits and allowing each depositor to draw on his account from 1% to 10% of his balance (generally 5%). This 5% was kept in actual currency in the banks' vaults and known as cash box deposits similar to the plan for trust deposits outlined in President Roosevelt's proclamation. Any new deposits made were credited to this cash box deposit (in the case of checks, when & if the banks actually collected them). To work this system bankers had to keep practically two sets of books, one for the 95% of old deposits, the other for new cash box deposits. The latter accumulated rapidly in Cleveland, but the scheme left the problem of liquidating the frozen 95% unsolved.

Scrip. President Roosevelt's proclamation pointed directly to the general use of scrip as a means of exchange. Secretary of the Treasury Woodin intimated that the Government would issue no national scrip but would leave each financial area to develop its own system under Federal supervision. Bankers worked night & day planning to issue this money substitute while presses whirled out millions of oblongs of paper which citizens would be asked to accept in lieu of cash.

Broadly, scrip is any evidence of assets. The specific kind of scrip in prospect was Clearing House certificates issued against bank deposits. The procedure:

Banks which exchange one another's checks through a local organization called a Clearing House agree (as they were agreeing in many a locality last week) that they have a mutual confidence in their solvency and will therefore honor each other's certificates at face value. On each certificate is printed the name of the clearing house. No bank gets more scrip than it has in cash and ready assets.

John Citizen marches into a bank where he has $500 on deposit and slaps down his personal check for $50. The teller deals him out $50 in scrip. It carries no promise of redemption in lawful money at any time but it does evidence the fact that John Citizen's bank is good for $50. He buys a suit of clothes. The clothier passes the certificate on to a wholesaler who finally deposits it in another bank associated with the local Clearing House. That bank either reissues it or returns it to John Citizen's bank for collection. Thus the $50 certificate has circulated like money, though it is not a promise to pay in gold. It is not fiat money (inflation's kind) because behind it stands the tangible assets of the issuing bank. It remains in circulation until banks are ready to call it in and pay out cash instead.

During the 1907 panic U. S. banks issued $238,000,000 scrip. In New York City it passed as currency for five months, despite its illegality. The great trouble with scrip is the difficulty of transfer from one clearing house district to another between which there is no agreement of confidence. One district's scrip might be at a discount in another district. The Federal Reserve is counted on to facilitate interstate as well as interdistrict exchange but at best scrip is expected to be only a local and temporary relief during the currency shortage.

American Bank Note. While young bankers learned about scrip, the public suddenly learned that there was an American Bank Note Co. Shortly before midnight, Friday, President Daniel Ellis Woodhull was suddenly given the order for hundreds of millions of dollars of Clearing House certificates. His was the only concern that could do the job and do it on time. Never an advertiser, American Bank Note suddenly became the most thoroughly publicized company in the U. S. From the dribble of business it has had since the Depression, its chief plant in The Bronx, N. Y. jumped to capacity production on a 24-hour schedule.

It was an old story to American Bank Note, which has been printing stock certificates, bonds, checks and bank notes since 1795. Some of its old plates bear the name of Paul Revere. Back in 1907 its presses hummed night & day--printing clearing house certificates. And though printing engraved certificates is a slow and delicate process. Bank Note's skilled em-ployes (some of them representing the fifth generation with the company) had presses rolling in short order while com-pany police guarded outside.

Dapper, amiable President Woodhull took his colossal order as calmly as he does those for paper money for China (where paper money was invented) or for a batch of foreign bonds. In 1914. when the Germans were bearing down on Paris, he was called to print bank notes for France, but the order was canceled when Paris did not fall. He went to American Bank Note 46 years ago at $7 a week as a plate toter. It is his passion for exercise, he thinks, that makes him look 15 years younger than his 64 years.

Mint. While scrip poured forth in The Bronx, the U. S. Mint in Philadelphia calmly pursued its routine coinage of pennies and $20 gold pieces. Said an official: ''We have no orders with regard to the present situation. This is just a factory. . . ."

Outside the Banks, life went on in a mood of perplexity now cheerful, now gloomy. "While the people of the state of Kentucky are suffering from a general depression, they may, perhaps, in comparison with the people of other states, have just cause for thanksgiving. . . ." So declared Governor Ruby Laffoon last week, creating four days of "Thanksgiving" to make bank holidays legal. Although other Governors omitted such laffoonery, citizens nearly everywhere were surprised and thankful that realities were no worse.

P: In California Governor Rolph reprieved Peter Farrington, condemned murderer. Reason: doubtful legality of a hanging on a holiday.

P: In Texas some theatres accepted I. O. U.'s for tickets, druggists accepted checks for drugs and promised to fill prescriptions free, on written order of a doctor, for anyone who could not pay.

P: In Princeton. N. J. The Daily Princetonian, undergraduate daily, ran off 25-c- scrip notes on its presses, to be purchased by check, passed on to merchants, redeemed by the Princetonian when banks reopen.

P: Newspapers blossomed with advertising of stores that offered credit. Nearly everywhere merchants continued giving credit to customers with charge accounts and many "cash" stores broke their rules to give credit to regular customers. R. H. Macy in Manhattan, largest U. S. department store, did an 80% business on Monday, the second business day of the moratorium in New York. Speakeasies everywhere were the most liberal in extending credit.

P: The Treasury Department announced that income tax returns must be made by March 15 but agreed to take checks and wait till they could be collected. Life insurance, gas and electric companies were generally accepting uncashable checks in payment of premiums and bills and imposing no penalties until the payers could make good. In Alabama the Public Service Commission forbade utilities to discontinue service for nonpayment of bills.

P: The currency shortage found counterfeiters unprepared to take advantage of their great opportunity. Only reported attempt to do so was that of a Negro in Baltimore who gave a false 50-c- piece for a bottle of milk. Discovered, he clubbed the milkman with the bottle.

P: In Manhattan, the manager of the Hotel Commodore sent a bellhop to a nearby church to exchange bills for silver from the collection plate. A clerk in a Schulte cigar store said he had enough change for a week. ''But, for God's sake don't mention it. . . . You'll have all the other Schulte managers sending for it." Rich folk entered automats, got 20 nickels, ate nothing. Change was plentiful in the subways. "We're taking the place of them banksters," boasted an Interborough boothman.

P: The pressagent of Manhattan's Roseland dance hall said I. O. U.'s would be accepted from dancers with bank books. Bayuk Cigars, Inc. messaged its salesmen: "In the temporary trial of our courage you must have faith in your country, in your job and in yourself. . . . Bayuk will continue full speed ahead."

P: In San Pedro, Calif., cash became more plentiful when U. S. paymasters distributed $500,000 pay to the 30,000 men and officers of the U. S. fleet. At Calexico silver pesos from over the border supplemented the currency available. In Michigan, Canadian money helped out. Elsewhere street car tickets and telephone slugs were in use.

P: In Manhattan many a big corporation, like Ford in Dearborn, met its payrolls in cash. In general these were retail stores and transit companies which deal in cash--Lehigh Valley, Pennsylvania and New York, New Haven & Hartford railroads, Western Union, R. H. Macy & Co.

P: Barter blossomed. In Ashtabula a newspaper offered to print free advertisements of goods for swapping. Two commodity exchanges in Milwaukee found long lines of would-be customers waiting on their doorsteps the morning after the Wisconsin holiday went into effect. A wrestler signed a contract for a match with any opponent accepting as payment a can of tomatoes and a peck of potatoes. In Manhattan, admission to a Golden Gloves amateur boxing tournament could be had for cigars, combs, soap, chisels, groceries, kettles--anything worth 50-c-, plus 5-c- cash for taxes.

P: In Nebraska and several other States safe deposit companies were closed as well as banks; citizens who had salted away currency or gold were as badly off as others.

P: Traveling salesmen everywhere were hard put, some of them hitchhiking when they could not buy railroad tickets. In Manhattan, a smart Rochester shoe drummer raised enough cash to get home by selling samples in a hotel lobby.

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