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CHAPTER LII.

NEW YORK AS A FINANCIAL CENTRE.

ITS PAST, ITS PRESENT, ITS FUTURE.-BANKING DECADENCE. -GROWTH OF INTERIOR CENTRES.-OBSTRUCTION FROM THE NATIONAL BANK LAWS.-RELIEF Demanded. —REQUIREMENTS OF THE FUTURE.

WHA

HAT New York has been as a centre for the settlement of financial transactions is a matter of history; what it is destined to be, in that respect, may not be so entirely certain as some people hastily assume. There are some facts which seem to suggest the question whether our city may prove able to retain its past proportion of the vast settlements of this ever-growing continent; and, although there is nothing to warrant very positive opinions about the future, it must be conceded as an unquestionable historic fact that in late years there have been symptoms of positive decadence in the status of our financial metropolis.

In the past there have been three separate successive sets of conditions directly affecting the financial standing of New York. First, there was the period when this city was the distributing point for nearly all the importations, and for the bulk of our domestic manufactures through all parts of the country. Equally, New York was the almost sole port of export for Western products, and although the exports for the cotton States were made direct from their local ports, yet the financial transactions connected with those shipments were effected through this city. Then New York had virtually no competitor as an exchange centre.

Next came a period during which the larger Western cities, especially Chicago and St. Louis, aspired to become distributors of foreign and Eastern merchandise; a change very naturally following the rapid growth of population in the West and Southwest. Thus a vast jobbing trade became

rapidly established at these interior centres, and New York's share in the distribution of goods to the retail trade became, in a large measure, confined to the Middle and nearer Western States, and to a portion of the South. The jobbers of these new interior centres, however, had still to get their supplies of merchandise from or through the Eastern metropolis; so that, whilst we lost much of our jobbing business, we retained, with some limited exceptions, the importing and commission branches, together with their ordinary rate of increase.

We are now in the beginning of a third and still more important era, during which both the importing and commission branches of our trade are threatened with invasion. The Western jobbing houses have attained a standing which warrants their importing direct from the countries of production, instead of through New York. Another Western and Southwestern consumption has risen to such a magnitude as to encourage the creation of manufacturing establishments in the vicinity of the markets. The West is rapidly becoming a competitor in the leading branches of manufacture with the East, and is evidently destined to supply itself, at no distant day, with a very large portion of the domestic merchandise hitherto contributed through New York merchants, and with the facilities of New York banks. Nor is this all. Chicago and some other Western cities are throwing off their dependence on New York intermediaries for the exportation of grain and provisions, selling them direct to Europe, and shipping the goods on through bills of lading.

These changes are not the result of any mere spirit of blind recklessness grasping after business. They are the product of actual natural economies, and appear to be so decidedly in the interest of the Western merchants that it can hardly be doubted that the new methods have come "to stay."

Clearly, then, the natural development of national produc

RISE AND DECLINE OF THE CLEARING HOUSE. 579

tion of commerce is to build up independent financial centres at the interior, the effect of which can only be to check in some measure the growing ascendancy of New York. Perhaps few among my readers will be prepared for the following statistical facts bearing on this question; the conclusions to be drawn from which are not very flattering to the pride of the "Gothamites."

The transactions at the New York Clearing House are the surest indication of the standing and progress of this city as a financial centre. The records of that institution show that its annual exchanges rose step by step from 5,750 million dollars in 1854 to 48,566 in 1881, an increase of 744 per cent. in 27 years, or at the average rate of 1,585 millions per year. From 1881 there has been the following remarkable rate of decline:

In 1881, the exchanges were 48,566 millions of dollars.

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Thus it will be seen that there has been a decline in the transactions of the Clearing House banks of 23,315 millions, or at the rate of 48.4 per cent., within the last four years. Last year the exchanges fell below even those of twenty years previous, when the amount was 26,032 millions. Of course, this very remarkable decrease in the volume of transactions is, in part, attributable to the great falling off in the amount of speculative transactions in 1885, as compared with 1881. This, however, can only account to a comparatively small extent for such a vast change. Something is also to be attributed to the general decline in the prices of merchandise and investments during the period; but this explanation is also entirely inadequate, for the average fall in prices did certainly not exceeded 20 per cent., while the decrease in the exchanges, as already shown, had been 48.4 per cent. Moreover, on the other side, some offset against the de

cline in speculation and in prices must be allowed on account of an increase of five to six millions in the population of the country during the interval; which alone should call for an increase of 10 per cent. within this period. It is still more significant that, since the year 1872, the capital of the banks in the New York Clearing House has been reduced from $84,400,000 to $58,600,000, a decline of 30 per cent.; which at least implies that banking has become less profitable than it formerly was, and which could scarcely have happened if New York had retained its wonted share of the increase of financial operations arising from the growth of population and commerce in the nation at large.

Some light may be thrown on these changes by a comparison between the ratio of progress in the transactions of the Clearing Houses of New York and Chicago respectively.

In 1866, the first complete year of the Chicago Clearing House, the clearings amounted to $453, 00,000, while in 1885 the figures reached $2,318,500,000—an increase of 410 per cent. At New York, in 1866, the clearings were $28,717,000,000, and in 1885 they had fallen to $25,250,000,000 -a decrease of 12 per cent. within two decades of great national progress, and while the population tributary to this city had increased over twenty millions.

In the year 1879-the period of the resumption of specie payments and of the beginning of a great revival of commerce and of financial enterprise-the Chicago Clearings were $1,257,700,000, and last year they were $2,318,500,000, showing an increase of 84.3 per cent. The clearings at New York, within the same period, show an increase of about of one per cent.

It has already been shown that the capital of the banks in the New York Clearing House (exclusive of surplus) fell 30 per cent. below 1872 and 1886; on the other hand, the capital of the banks in the Chicago Clearing House rose from $9,845,000 in 1872 to $16,928 000 in the present year. an increase of 72 per cent.

BANKING FACILITIES INADEQUATE.

581

The foregoing comparisons show that although the clearings at Chicago are only about one-tenth those of New York, yet the former city is making very rapid strides, while here we are virtually retrograding, and confirm the conclusion above expressed, that the importance of New York as a financial centre is suffering from diversion of settlements and of banking facilities to the larger cities of the interior, and especially to Chicago.

So far as this tendency is the result of natural changes in conditions, it is inevitable and must be permanent, if, indeed, it be not destined to gain in force and extent. But SO far as the change is due to artificial obstructions to banking operations, it is susceptible of modification.

And here I may be permitted to venture certain suggestions which may quite possibly encounter objections from men more than my peers in banking experience and wisdom. It has long been my conviction that the banking arrangements existing at New York are far from satisfying the requirements of a city that not only aspires to be, but also possesses many adaptations for occupying the position of the great financial centre, not only for domestic settlements, but also for international exchanges.

The bulk of our banking transactions are done by banks incorporated under either national or State laws. Admirably as the national banking system, taken as a whole, is constructed, yet it includes some important positive disqualifications for its institutions performing an important class of operations essential to a great centre of exchanges. It was, perhaps, not to be expected that a system designed mainly for provincial cities and for rural populations should adequately provide for these broader wants. Nor could any uniform and homogeneous system be expected to be very perfect and satisfy at the same time both classes of requirements. Interior banks, whose management must be expected to be more or less lacking in experience and competency, may need to be placed under legal restraints, which, in the case

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