The great central banks of Europe have demon strated that the way to stop a panic is to loan freely, instead of shutting off all loans, as our banks were compelled to do. Of course, the rate of interest should be raised. In fact, it should be raised before the crisis comes, in order to check inflation of credit and to warn bankers and business men of the neces sity for shortening sail. By raising the rate in ad vance, commitments are checked, a certain amount of liquidation is forced and business is prepared for trouble. In our system, what bank was to raise the rate ahead of time? If one should put up its rate and the others did not, it would lose business. The only possibility was an agreement among all to bring about a common rise. But such action smacked of corn bination in restraint of trade and it might draw down upon the bankers' heads a thunderous remonstration from political demagogs at Washington and else where. Combined action was seldom undertaken un til it was too late to prevent trouble. It came as a
cure after the damage had been done. Our bankers were forced to go on competing with one another, making loans at usual rates, until all had exhausted their loaning facilities and they were compelled to stop loaning altogether.
It will be remembered that raising the rate of in terest in advance of a crisis helps to protect a coun try's gold supply and it even brings new gold into the country from abroad. We were unable to take this precautionary measure until a crisis was upon us. When the trouble came, interest rates rose readily enough and prices fell. Foreign bankers loaned in this market at excessive rates and bought our securi ties at bankrupt prices. They sent us gold finally, but not until they had taken enormous profits out of the deal, and not until ruin had been spread thruout the country. They were not to blame. New York was not to blame. The trouble was decentralization of our bank reserves and bank control, lack of redis counting facilities and inelasticity of credit.