America's Money Machine

A Measure ofExpediency 35
the expense! Thus, enormous sums of money that normally were in
circulation were now locked up in bank vaults all over the country. How
to loosen up the flow ofthis cash was the monetary problem that Senator
Aldrich hoped to solve by his bill.
Such was the theoretical argument and situation, and at the time the
available banking statistics were too limited to permit a critical analysis
ofthe case. Subsequent studies made by the National Monetary Commission
indicated that the so-called country bank absorption ofcash was less
significant than it appeared at the time. Thus, the Commission tabulated
the weekly movement of money from the interior into, and out of, New
York City banks for the years 1899 through 1909. The figures showed
that the movement was normally inward throughout the year, except for
the months ofSeptember through November and the first halfofDecember.
The weekly movement ranged between $1 1/2 million and $6 million.
This pattern was broken in 1906 when a heavy withdrawal by interior
banks occurred in the latter part of April and the early part of May,
coincident with the stock market decline of that year, with $42 million
going out in two weeks, and with the drain persisting until the end of the
month. Thereafter an inward movement resumed until the fall withdrawals
began-this year somewhat earlier, beginning the first week in August.
The spring of 1907 saw a resumption of interior withdrawals, though
neither heavy nor consistent, and a renewal of an inward movement
beginning in May and continuing, with some breaks in August, until the
first week ofSeptember. The movements remained modest, however, but
nevertheless inward, until the stock market crash, the first tremors of
which began on October 16. Thereafter, between October 18 and the end
of the year, New York City bank balances were drawn down by interior
banks to the extent Of$124 million. With the New Year, however, a heavy
return movement of funds began and $68 million was recovered by the
end ofJanuary.*
During the three years 1905-1907, the net annual outward movement
of funds to the interior had been $37 million, $85 million, and $106
million, respectively. In 1908 the movement abruptly reversed and the
net inward flow accumulated to the amount of $156 million by the year
end.
A further item illuminating the nature of the October crash was the
*National Monetary Commission, Vol. XXI, Statistics for U. S. pp. 229 ff. It should be
noted that this inward movement reflected a restoration ofconfidence in the banking system
just as the similar indices in 1932 showed a revival ofconfidence and trade well before any
new legislation or administrative reforms had been enacted or even agreed upon.