8 The Conservative.
factory , he can present his evidence of
sole of this property to a bank and get
it changed into means of payment.
The value of goods expressed in terms
of money ( the common denominator ) is
by the bank converted into means of
meeting obligations , so that goods may
be exchanged against goods. This is
the pre-eminent service which the banks
render to society. The process is sim
ple. The sale of the goods creates a bill
drawn on the purchaser for , say , ninety
days ; the manufacturer takes this claim
for a given sum duo in the future , and
sells it to the bank in return for the
right to draw on the bank immediately.
That is , the loans of the bank ( on the
side of resources ) are increased by
this bill ; and a deposit on the liabilities
side is credited to the borrower. Now
it by no means follows that the bor
rower ( who is now technically a deposi
tor to the amount of his loan ) will take
his deposit away. All he wishes is that
the value of the goods sold may be util
ized in the form by which he can pay
tomorrow's maturing note. By draw
ing a check on the bank in favor of his
creditor ho transfers to another the right
to draw on demand , and his debt is paid.
The granting of the loan by the bank
depend's upon the borrower's possession
of or capacity to obtain property ;
whether , after the loan is granted in the
form of a deposit , actual money will be
drawn out , or whether this right to
draw will be passed about on paper from
one to another depends entirely upon
the business habits of the bank's cus
tomers. In our chief cities the right of
drawing out cash is seldom exercised ,
because payments can be more expeditiously -
itiously and safely performed by trans
ferring the title to the deposit.
The real function of a bank is thus to
a.ssist the man of business who has pro
perty , and whoso credit is good where
known , to secure an advance of current
funds which ho can use in his business.
Those selling commodities to him may
not be willing to let him owe them , for
they may not know what his credit is ,
or even if they do , may insist on being
paid because they need the money , and
those to whom they must make pay
ments would not know the merchant's
credit , and hence would not be willing
to take his notes. They know the bank
however , and are willing to have it owe
them ( either as evidenced by bank notes
or deposits ) , because they know thai
the customs of the community make
such bank liabilities a form of money
The members of the community , there
fore , are willing to leave funds with i
bank which they can call for ; and on
the strength of these , and with the nic
of the bank's capital as a guarantee , the
bank makes the advance to the merchan
who needs means .of payment. The
bank's promises are convenient and use
ful to the community , since they arc
currency , while an individual's promises
are not usually sufficiently well-known 01
guarded ; and third , the one is more ac
ceptable and valuable than the other.
? or this reason the merchant is willing
to pay the bank for giving him immcd-
ate means of payment for his note ,
even though what he receives may bo
only the bank's promise instead of his
own. So long as the bank's promises
are convertible into money and are ac
cepted by the public as equally as good
as money and even moro convenient ,
they are currency and means of pay
ment , which his own promises are not.
In this way , then , a man having pro
perty , readily salable , can borrow upon
the strength of it ,
TUB HENEFIT
TO fc the vnlue Qf
THE COMMUNITY.
pnperty
verted into means of payment , ex
pressed in terms of the standard , and
exchange it for other forms of property
which lie most needs at the moment in
his business ; and all this is swiftly and
conveniently done by creating a deposit
and giving the right to draw on it. It
is a highly efficient medium of ex
change indeed the most efficient , and
; he most largely used at this time by the
Business men of the United States.
The value of wheat shipped from Chicago
cage to New York appears expressed
iu terms of money in a bill at a New
York bank to be traded against a similar
title to dry goods traveling west from
Now York. And the exchanges take
place through deposits and transfer of
rights to draw on deposits. Anyone
may now sec how the deposits of a com
mercial bank are enormously increased
by the result of granting loans. It does
not at all follow that deposits were ori
ginally formed out of money left with
the bank. In most eases the balances
deposited are simply checks transfer
ring claims on deposits created by loans.
In England and the United States , iu
normal times , the loans and deposits
move together , and their sums roughly
correspond ; because in these countries
the habit of using checks on deposits is
highly developed , as contrasted with
the continent of Europe ( or rural dis
tricts in our own country ) , where note
currency is largely used.
When we consider the operations or a
bank , then , it is evident that the insti
tution can do its work equally well
either by notes or deposits. It is for the
community , by its own business habits
to determine which shall be used ; from
the view of profit to the bank it makes
no difference which is used. It also fol
lows clearly enough that expansion am
speculation are equally possible under
either form of currency created by the
bank. The essential point lies in the
discounts. If a speculative mania
seizes the public and loans are made 01
property which turns out eventually not
to bo worth what it seems to be , thei
the liabilities created on the basis of
these assets may be unduly expanded
whether the liabilities are notes or do-
posits. This has been illustrated by his-
tory. In the United States before 18S37-
1830 careless lending produced an ex
pansion of notes because notes were the
and of currency the public then de
manded. In England , before 1844 , it
was also urged that speculation and
expansion were duo to the issue of notes.
In 1844 , the Issue Department of the
Bank of England was entirely separated
from the Banking Department ; and
while its notes can no longer be in
creased except by deposit of gold , the
deposit-currency provided by the Bank
ing Department has been expanded in
iimes of over-trading quite as certainly
as under the old form of note-issues.
Without going into details , it is suffi
cient to point out the error of supposing
that by controlling the issue of notes
alone expansion of the currency can bo
prevented. So far , however , as notes
are the necessary currency of certain
parts of the country , they will , of
course , be the form through which any
expansion must necessarily take place.
TJIK " NKW DUTIES " AND " NEW
RELATIONS. "
"We have in our time read many a
yard of buncombe and blatherskite , but
buncombe and blatherskite used to bo
simply funny. You read them , you had
your roar or your chuckle , as your habit
might be , and you flung the stuff into
your basket. One of the peculiarities of
this day is that buncombe and blather
skite have become wicked and malig
nant , as well as amusing and silly. They
have at last begun , for the first time in
then history , to fill the minds of the
public with anti-social passions , with
envy , hatred and malice , with the desire
to humiliate and injure fellow-men wither
or without cause , with the desire to seize
what does not belong to us in virtue sim
ply of our superior strength. They are
being used to turn away a whole Amer
ican generation from the arts of peace
and civilization , to fill their minds with
dreams of battle and murder and sud
den death , to persuade them that the
ideas of national greatness and indi
vidual glory through which the Ameri
can people have risen to unparalelled
strength , and have won the respect of
mankind , have all been a mistake , and
that wo from the start should have closely
followed the old-world example of strife ,
extravagance , and folly , of blood and
tears and devastation.
There are many excited windbags engaged -
gaged in tin's silly business , but wo have
not come across one who has made his
comedy so mischievous as Mr. Griggs ,
the attorney general of the United States.
Hero is some of his latest stuff , which ,
properly enough , was delivered at a po
litical convention :
"These now duties * and now relations will
add fresh dignity to American citizenship ,
will raise the sense o official and political
obligation as they increase responsibility.
They will take thcpcojilc out of ( ha treadmill
rotindx of domestic polities , where innitcx arc
too often artljtcialund transient. Now thoughts ,