scheme can be devised that will compel men to keep it. Quite aside from all questions of legality the agreement is worthless because it is no stronger than each man's belief in the good faith of all the parties to it; and, since every man feels sure that at least some of his competitors will be quick to violate it and reap a profit, he secretly violates it himself.

The agreement to tell one another what has been done is quite another matter, since after all it simply provides for the systematic exchange of information that is sure to come out sooner or later. This obligation is so fair and works out so many good results that the trickiest competitor in the end sees that it is to his advantage frankly to live up to it. It takes, however, months of patient effort to educate all to the point of frank and prompt compliance.

3. The filing of contracts as and when closed is the final step in the reporting plan; it marks the termination of the competition. The secretary's office will thus have a complete file of each transaction—the (a) original inquiries, (b) all bids and changes in bids, (c) the contract as finally awarded.

With this data the association is ready for an intelligent discussion of the business of the month, and the plan is not complete without this discussion. The open price policy means not only open prices but open discussions.

To this end regular weekly, semimonthly, or at the longest-monthly monthly meetings are necessary, at which members must be represented by principal officers who are familiar with business details and can speak with knowledge. Meetings attended by subordinate agents are a waste of time.

At first there will be a strong tendency on the part of members to reproach one another for "cutting prices," "reducing bids," etc. - the old story. This tendency to complain must be firmly repressed. In time all will come to understand that they are free to cut, free to change. Then the discussions will turn upon whether notifications have been filed promptly in good faith. For a long time there will be numerous evasions by members who are

eager to get orders regardless, but as these evasions come to the surface, at meeting after meeting, they become less and less. numerous, the crookedest member falls in line with the straightest, the open price becomes an accomplished fact.

Now what are some of the results? First, "vicious" bidding disappears. By "vicious" bidding is meant bids put in by competitors who know that they stand no chance of getting the work, simply to "make the other fellow do it for nothing.' Of all competition that is the meanest. No purchaser has the right to encourage it, no producer the right to indulge in it; it means the sure elimination of the weak, the ultimate monopoly by the strong.

Second, with open bidding there is the natural, the automatic tendency for prices to approach normal levels, the wide variations so frequent under false competition - secret bidding are minimized. There is less bidding below cost at one extreme and fewer or no arbitrarily high prices at the other. The customer is surer of fairer treatment in the long run, the producer of fairer prices. The open price policy is both a safety valve and a governor, it works toward stability.

Third, by eliminating secret prices it eliminates secret rebates, concessions, graft; by bringing all dealings into the open it ends four fifths of the fraud and misrepresentations that now attend the letting of the simplest contract; the purchaser will no longer be able to secure a fraudulent advantage by saying that he has a lower bid when he has not. In all their dealings both purchaser and producer will be more nearly on a footing of equality.

Fourth, the business will be placed upon

more scientific and rational footing. Instead of competitors working under conditions of jealous distrust and suspicion, wasting time and money in doing things that they either should not do at all, or should do with a fraction of the expenditure, they will coöperate to accomplish as a unit the things they rightfully may do.

Finally, the open price policy - the New Competition with the friendly association it involves, will tend to make commercial life a little pleasanter, a little better worth living.

A

BOY brought in a message to the bank president that Mr. Blank wanted to see him about a loan. The president went over to the door, and beckoned to a tall and rather rough-looking man who stood outside the rail. They talked at the open door.

"How much and what for?" asked the president. The caller said that he was doing some contract work for the new railroad coming into town, and wanted credit to meet his payrolls and supplies, pending the railroad's payments. They talked a few minutes about the work, about rates, about dates of payment and some other matters of that sort, and the president finally said he would "fix him up." He referred him to another officer of the bank. The visitor went back and the president came in to talk about matters of banking.

This was in Seattle. I noted that there was no talk about security, as we understand the term in the East. The president explained that he knew the man fairly well as a live and energetic small contractor, who always did good work, paid his debts in time, and was a good customer for the bank.

"He has no assets, probably," he said, 'except the tools of his trade and possibly a house in the city. All the security we need is his name and his promise backed by his work. If we demanded the same sort of security on our loans that you demand in New York this bank might as well quit right away. Our job is to finance

the legitimate needs of our customers, and we have to take our security as we find it or somebody else will."

There is the function of a bank put into a phrase. The business of a commercial bank is to make commerce move, using the word "commerce" to mean every form of legitimate money-making and wealthproducing function in the country. The method must be such as to impose the least unnecessary check upon the movement of commerce. The traditions of New York must not be imposed upon Seattle industry. The habits of Seattle must not be taken as the criterion for sound banking in New York.

In all the West, I found the rules entirely different from the the Eastern rules. A national bank is a national bank, East or West, one may suppose; but the method of Seattle or Los Angeles may not be the method of New York or Philadelphia. Therefore it is not at all surprising to find that on a day in June last, six little banks in Seattle had lent on individual or firm notes without any other security than the names $8,597,000; while the whole national bank group in New York had lent on similar paper only a little more than $9,000,000. On that same day, in San Francisco, the loans of this sort amounted to more than $47,000,000.

The first impulse of an Eastern man, looking into the bank loans of the West, is to call it "kite-flying" as one famous European student did - and thereby do the Western banks a grave injustice. It is really an adaptation of the first prin

ciple of banking, namely: that the assets of the people who use the bank must be good security for loans or the bank must cease to live. Just as the little coöperative bank in Germany will lend a farmer five dollars to buy a sow, and time the loan so that it may be paid off from the sale of the first litter, so the Western bank in our national system will finance any legitimate and sound money-making venture of its customers. It is a system of credit based upon industry, and upon much closer and more accurate knowledge of the man himself than can ever be possible in the bigger Eastern cities.

The real point of this illustration is that the bank does not make the commercial habits of the city or the customer. On the contrary, the commerce of the city and the customer shape and dictate the habits of the bank. Thus, in a flourmaking city, the banks will lend freely against wheat in process of manufacture, and for the full term required to complete the whole transaction, from the purchase of the wheat to its sale for cash in Eastern markets. In a cotton country the banks shape their policies to help in the widest possible way the planting, cultivation, picking, and sale of cotton. In one city one finds the banks adapted to short loans and quick turn-over, money flowing in and out in short and rapid waves; while in another city, the centre of another sort of trade, loans are long and slow, and perhaps for months at a time money is hardly in use at all.

This is but a glance, of course, over the banking practice of the commercial banks throughout the country. To analyze it in detail, to tabulate the average length of loans and discounts in New Orleans, a sugar and cotton market; in Kansas City, a merchandizing centre; in Omaha, a corn and wheat market; in Minneapolis, a flour city; in Portland, where they handle lumber; in Duluth, a city of ore; in Grand Rapids, where furniture rules; in Lynn, where shoes are made; or in Los Angeles, a city of diversion and diversity to tabulate and classify the habits and the whims of the banks of commerce in these many cities might make an entertaining book for a banker's holiday,

and might even help to clarify the banking questions of the day, but it would be a task too long and wearying to be handled in such a series as this.

Let it suffice to summarize and say that by long practice, by the use of common sense, and by the help of an understanding government, the commercial banks of the country as a whole have worked out methods of their own whereby they handle in normal times a gigantic commerce and do it, on the whole, not badly.

This is one side of a picture. All men approve it. Here and there a critic, looking upon the banks at work in all the South and North and West, concludes that here must sound banking end; and that anything beyond is not of the commercial banking world but of some other kind of banking. Sometimes he calls it "financial banking," and draws a fearful picture of it. It is well to look upon that picture too, if one would know what banks may do with the money of the people.

On the same day that in Seattle they were lending nearly as much money on plain notes as they were lending in NewYork, the banks of New York had other loans of $332,000,000 made to people who put up in the bank certain collateral – stocks, bonds, etc. and who agreed to pay off these loans on demand. For comparison, the Seattle banks had less than $5,000,000 out on such loans. Still other loans made in New York on similar collateral but not callable except at a stated date-time loans - brought the total up to more than $500,000,000.

Half a billion dollars lent in New York on collateral there is the rub! This is the thing that every critic of our banking system siezes hold of as the handle for reform. This half billion dollar fund has been depicted always as a gambling fund lent to Wall Street to carry on speculation, to finance great money making pools in the stock market, to pander to the ambitions of a Harriman or to the schemes of market cliques led by speculators of the Gates and Keene stripe. It is the very heart and centre of the great popular distrust of our banking system.

One day, in my office, a man from the Middle West spent nearly an hour telling

me the tale of his oppression by the "money trust." He had come East to raise $2,000,000 to finance an automobile factory. He found automobile factories quoted at a discount.

"Why," he said, "Morgan is the banker for the General Motors Company, and a Morgan broker has just lent a lot of money to the United States Motor Company. You have no chance if you ain't a trust. These banks throttle business. They tell me they won't lend on anything I've got because it isn't 'Stock Exchange collateral.' What in h has the Stock

Exchange got to do with a buzz-wagon factory in Indiana? They lend all their money to Stock Exchange gamblers!"

By way of adding fuel to the flames, I turned over the pages of the last Washington report on the national banks and pointed out to him that on one page this report showed that the New York banks held $322,000,000 of money belonging to country banks; while on another page it appeared that the "call" loans on collateral in New York on the same day were $332,000,000. He gazed at the figures for a minute and then said:

"I wonder where they got the other ten millions!"

In his temper, he expressed the popular superstition about collateral loans by commercial banks. He believed that the sole aim and purpose of all this lending on collateral was simply to carry on gambling operations in Wall Street and to pander to the trusts, all securely tucked. under the wing of Mr. J. P. Morgan, “the King of all the Trusts" according to my Middle Western visitor.

Yet this man had come to New York, his pocket bulging, figuratively speaking, with $2,000,000 of bonds and $2,000,000 of stock in a new automobile company, hoping and expecting to put those securities up under a collateral loan and get $2,000,000 of money out of the banks! When it was pointed out to him that what he wanted to do, in reality, was to raise that total to $324,000,000, and he was asked whether that, too, would be a "gambling" loan, he looked a little dazed. Finally, he told the truth in words something like this:

"When it comes to paper, I can get my bills out of the local banks in Indiana; but when it comes to getting the capital to start things, of course, I've got to head East!"

Here is a function thrown upon the broad shoulders of New York. I am going to illustrate it by some extracts from the news of the day; but it is well to say, in passing, that it does not account for all or nearly all the collateral lending in New York. A very large amount of money is used at all times in the turning over of stocks and bonds on the New York Stock Exchange. Much of it is pure gambling. Much of it, on the contrary, is not. A good deal of it is simply a laborious process of making standards of investment value and expressing those standards in concrete terms. A lot of it is the ebb and flow of a sea of invested capital. There is no possible method of analyzing it in more than a very perfunctory way.

Quite apart from it, and different in character as day is from night, is this big task of "getting money to start things," as my Indiana friend put it. Take up the news and see the thing going on. This is no sermon; it's only a bit of a reporter's job.

One day in the early winter, the responsible officers of the Pacific Gas and Electric Corporation, a California giant engaged in making water work in various ways, came to their bankers in the East and demanded $18,000,000. The bankers had seen the thing grow. They found it first some years ago, a big, awkward, watery, weak-legged calf of a corporation, and nursed it through its gigantic infancy as best they could. They fed it on money drawn from almost every land where money grows, drawn in driblets, as it were, and siphoned through the bond market in New York across the continent to San Francisco. So they brought it to maturity.

Then it demanded $18,000,000. Its own bankers looked it over, said that it was good, and sent it over to Morgan's. The partners of that house listened to the story, asked questions, examined its treasury, its income, its outgo, its license to

So it got the eighteen millions, more or less. Its officers handed over to the Morgan firm $20,000,000, par, of Pacific Gas and Electric Corporation bonds. The Morgan firm is not making a collection of bonds. It has no use for bonds until it has gotten rid of them. Therefore it called upon two other houses that deal in bonds with the general public to come and take these away. They took them away and gradually sold them to the public. That job is still going on.

All these long months, theoretically, the Pacific Gas and Electric Corporation is spending that money. It came out of the banks. First of all, possibly, it was borrowed, on collateral, by J. P. Morgan and Company. Then the load was transferred, and it was borrowed, from other or the same banks, on collateral loans, by the other two banking houses. Then they sold it, to dealers and brokers, hundreds of them, and to the public. The dealers took their little lots of bonds around to their banks and put them up as collateral for loans.

Thus the load was scattered, so that nobody had too much. First it was one big loan; then two big loans; then a hundred little loans; and after a while it will gradually dwindle away, as investors buy the bonds for cash, until all this money that the Pacific Gas and Electric Corporation is spending these next few years has finally been borrowed from the final lender on collateral, the little man with his few paper bonds, maybe in China or in England, or anywhere else where men reside and buy.

Just about the same time that this thing happened, and appeared in the item of "loans on collateral" in the New York banks, a threshing machine company, called the J. I. Case Threshing Machine Company, also wanted $8,000,000. It had borrowed in the West until the job got too big for the West. Then it, too, marched down to the corner of Broad and Wall Streets and asked for its money and got it. It had stock instead of bonds;

but it does not matter much so long as its initial garb is a "J. P. M. temporary certificate." It is all good collateral in the banks, if the right people hand it in. So, for a time, it, too, abode in Wall Street collateral loans, waiting for the patient process of distribution to the ultimate consumer, the man who lives on dividends.

This is not a chronicle of the year's finance, and I am writing without notes; but it is well to take notice of a few of the contributors to "loans on collateral" this last winter in these financial banks that are such vampires on the commerce of the nation. They came trouping from all the sections of the country. From Mexico came a great petroleum concern to borrow millions to carry on its work under the shadow of a revolution; and from Canada I remember best a cousin of the Sherwin Williams Paint Company of Cincinnati. The City of Tokio, Japan, came for $10,000,000; and Seattle herself was heard from for a few more millions.

The mightiest visitors of all are the great railroads. Here the Rock Island gathered gathered in its $20,000,000 to build a terminal in Omaha, to buy a line or two into outlying regions, to get ready the over-taxed equipment for a rush that may or may not come; there the ancient Northwestern, through a subsidiary, tapped the unfailing springs of capital. The Santa Fé raised money - again from the Morgan firm — on branches and main line in the far Southwest. The Pennsylvania, an honored visitor, asked and received in a hurry. The little Monon Route begged for a new coal supply and it was supplied by the Equitable Trust and its friends. The Southern Pacific, the Chesapeake and Ohio, the Vanderbilt lines — all these and dozens of lesser corporations came and lined up at the banking windows to add to the swelling list of "loans on collateral." Only the New Haven did not come, because she borrowed instead almost direct from the vaults of the savings banks of Massachusetts.

"When it comes to getting the capital to start things, of course, I've got to head East!" So said the man from Indiana;