Harvard Square Lacks Cold Cash, Local Bankers Assert Financial Stability---Dewing Blames Situation on West
Finance Professor Says Closing Of Banks Necessitated By Failures in Middle West
"From the Eastern point of view the bank holidays were not necessary; but to save the Western banks they were absolutely essential," declared A. S. Dewing '02, professor of Finance in the Business School, in an interview last night. "When a few banks failed in the Middle West, merchants in the districts affected, immediately sought to draw all their funds from the banks which still remained solvent, and this contagion for withdrawal spread throughout the country until moratoriums became unavoidable if whole areas were to be saved from financial ruin. New England is not one of those areas,--it is in better condition than any other part of the nation.
"The trouble with the whole situation is that banks have made too many loans on real estate, and in the last analysis, this all reduces to the fundamental cause of the whole depression: there were too many banks run by too many incompetent men. This was especially true in the Middle West.
Too Many Loans Made
"Of course," continued Professor Dewing, "it was perfectly natural that-with a multitude of banks operated by inexperienced men, far too many farm and real estate loans were granted. It is a survival of an almost medieval and perfectly natural belief that since land is tangible it must be a safe investment. The best proof of the fallacy of the idea is the fact that in Boston, where few real estate loans have been granted, the banks are absolutely liquid: within a few hours notice nearly every bank in Boston could pay every cent of its debts and still be solvent."
Asked whether he advocated giving the President the war powers requested by President Rooesvelt. Professor Dewing stated that Congressional legislation or presidential efforts can do little to relieve the situation. The loans which the government is making to farmers through the Reconstruction Finance Corporation are going to cause endless trouble when payment falls due, he pointed out. "As for President Roosevelt's plan, I do not think if would do much as a general thing. Fifteen hundred years ago the Emperor Diocletian tried to control labor and prices to relieve a financial crisis. It did no good then, nor have subsequent government attempts to relieve depressions accomplished anything more.
"Certainly the chief remedy that will be resorted to will be to allow only a small percentage of the deposits to be withdrawn. That will save the weaker banks from complete failure, but of course there will be runs on some banks when the reopening comes; others won't be affected greatly. That is why I do not advocate a national unification of all our banks: the stronger would have to bear the weaker; it would be placing a premium on inefficiency."
On the question of the need of executive control. Professor Dewing pointed out that in nearly every state in the Union, the local bank commissioner has all the authority needed to control the situation.
"The only thing that can relieve the present situation is for the people to be inspired with new confidence in their banks, and to achieve that, the banks must thaw out their assets. A general rise in prices would, of course, stop the depression right here, but that will not come for some time. We are now, and for some time will be, living in an era of low prices. The biggest obstacle to a general rise in prices is Russia, which is capable of selling wheat and oil with out regard to the cost of production.
"I do not think that these bank moratoriums will have much effect on Europe. The reason the dollar is not quoted on the foreign exchanges is that the mechanism for exchange is closed at this end. This depression is no worse than those of 1878 or 1898. In each individual will face the future and do his part to make the best of things the country will come through all right it always has in the past and I have every confidence that it will now."