Self liquidating magazines
“The wilder the outpouring of new units of speculation, the more acute and distressing the consequent panic,” he argued.
But Spring was a committed capitalist, and he viewed speculation simply as “a necessary and a beneficent human instinct gone wrong.” Government intervention to control it, he argued, should be beyond consideration: Fraud and coercion the State can restrain; but, unless we wish to go the road toward communism, the State must leave every buyer and every seller free to act as wisely or as foolishly as his intellectual and emotional capacities dictate.
Solid credit, he explained, is based either “(1) upon the competence, character, and earning power of the borrower, or (2) upon documents representing genuinely self-liquidating transactions.” In the case of debit balances, however, stockbrokers extended credit on neither ground.
Instead, the ability of the borrowers to pay back the loan depended on “the general level of stock prices.” But those prices, Smith pointed out, were “a function of the volume of credit so granted.” The flaws in this system soon became tragically apparent, ruining many unwitting investors.
Another Atlantic contributor, Sidney Hillman (founding president of the Amalgamated Clothing Workers of America and a prominent labor advocate), likewise focused on the importance of safeguarding citizen welfare.
In his November 1931 essay, “Unemployment Reserves,” he argued for an expanded system of unemployment benefits, and drew on his own experience with the men’s clothing industry as a case study to illustrate how such a system could work.
Not surprisingly, the onset of the Great Depression provoked a similar spate of economic soul searching.
In an April 1931 Atlantic piece “Whirlwinds of Speculation,” Samuel Spring blamed the collapse on more structural causes, showing how the promise of fantastical profits—proving to be “more potent than experience or reason”—had driven speculative booms and busts in three distinct sectors of the economy.
But during the high-flying ’20s, when a customer borrowed from a stockbroker to invest in the market, Smith observed, such caution was abandoned.
Eager to cash in, individuals assumed large amounts of debt in order to purchase stock they should not have been able to afford.
Thus, the traditional unit bank began to disappear, replaced by the chain bank, described by Ostrolenk as “a group of banks owned by a holding company, a group of individuals, or by one person—not by a bank, as in branch banking.” Ostrolenk emphasized that this restructuring of the national banking system “has sprung up in accordance with economic need.” The chain bank, he argued, was “an essential substitution for branch banking.” Still, as with any economic evolution, changes in the banking system had dire consequences for those left behind.
“Within eight years,” Ostrolenk reported, “almost one sixth of the United States banks have been suspended with losses to the depositors.” Not surprisingly, the vast majority of these had been small unit banks.