Che Conservative *
T1IE FAKMKK'S INTKUKST IN TIIK
HANKING OUKSTION.
How tlio I'rosent System Discriminates
AgaliiHt tlio Country Districts in Kiivor
of City Coiiumiiiltlt's.
Our natural sense of justice revolts at
unjust legislative discrimination ! ) agninst
any one clnss of our citizens as compar
ed with another. The character and
relative importance of our great agricul
tural industries especially demand that
there shall bo no such discrimination
against thorn. It is , therefore , eminent
ly proper that we should inquire whether
f , ' there is anything in our existing cur
rency legislation which unduly burdens
our agricultural communities anything
in short , which favors the city at the
expense of the country.
it is the object of this paper to careful
ly consider the farmer's relation to the
currency question from -this point of
view , and to direct attention to what
amounts to a serious discrimination
against him as compared with his neigh
bor in the city , and to suggest the
measures by which the injustice can bo
effectually removed.
Notes , the Country Currency ; Deposits ,
the City Currency.
In the preceding issue of Sound Cur
rency it has been made clear that bank
deposits constitute a portion of our cur
rency as truly as do bank notes. It has
been shown that in principle and
economic effect they are identical ; and
that the differences between them are
such as spring from the difference in
form and manner of transfer and con
sequent differences in applicability to
various uses. They are suited to the
habits and convenience of different ;
classes of people.
For the purpose of the larger commer
cial transactions , the deposit currency
was long ago found so much more con
venient than the note that even before
the Civil War it had , by its superiority ,
driven the note as an instrument of ex
change into a relatively insignificant
position in commercial communities ,
and especially among the commercial
classes in such communities. This
movement from the note currency to
deposit currency has progressed rapidly
since then until now the deposit oc
cupies a position in our currency system
which the note never attained , and
never , under free competition , could
attain. This growth of deposits at the
expense of notes has , it is true , been
facilitated by the restrictions placed up
on the issue of bank notes in the last 05
years. But that it is due to a tendency
which was rapidly forcing the deposit
currency to the front in commercial
districts even under conditions of more
equal competition , is shown by the de
velopments under some of the free bank
systems before the war.
Illustration Under State UaiiU Currency
System.
In the statej > f New York , for ex
ample , the aggregate note circulation of
the banks reporting Jan. 1st , 1882 , was
$12,005,82-1 ; and their individual deposits ,
$5,780,101 a total currency in both
forms of $17,788,925 , of which it will be
observed the notes constituted 07 per
cent , and the deposits 03 per cent. As
will be seen from the last columns of
the table which follows , the proportion
of deposits to the whole increased from
00 per cent in 1802 to 50 per cent in
1835 , 57 per cent iu 1840 , G(5 ( per cent in
1850 , 72 per cent in 1854 , and to 80 per
cent in I860.
form of liability is employed. Not so ,
however , with the customer. His
habits are more or less fixed , and if he
finds one or the other more convenient
for his use , he is not slow about mani
festing his preference. In a preceding
article some of the considerations which
have tended to make the note currency
preferable to the deposit-and-check
system in the country districts have been
suggested. On the other hand , the
greater convenience of the deposit-
herjk system where largo amounts
involved naturally led to a decided
Table Showing Development of Deposits as Compared With Hank Notes in New York
State , 18:52-1800. :
Niw YOHK CITY BANKS.
Jan. 1 , 1832
.Ian. 1 , 1835
Jan. 1 , 1840
Dee. 21,1850
Sop. 23,1854
Dec. 29,1800
Notes.
f 4,993,77 !
3,414,0. %
0,584,539 15' '
7,944,295 12'
7,999,050 9'
BANKS OUTSIDE N. Y. CITY
Notc.H.
. .
$9,470,27. ! 77 %
0,522,404,07 , "
.21,5H1,724 CO "
23,030,082 BO "
.20,240,800 no "
In this development , however , not all
portions of the country fared alike.
Taking the country as a whole , the
deposit currency , between 1805 and I860 ,
moved forward from a position in which
it constituted 45 per cent of the aggregate -
gate bank currency to one where it
amounted , to 55 per cent ; while , as
shown by the table above , the advance
in New York state in the same period
was from 50 per cent to 80 per cent. *
The explanation of this is to be found
in the fact that New York City was the
leading commercial city of the country ;
and the substitution of deposits
for notes has been preeminently a com
mercial development. The preference
of the bank's customers has been the
decisive factor. As already suggested ,
where banks are equally free to make
use of either note or deposit liability
( as the most of our banks were in the
early part of this century ) it is com
paratively immaterial to the bank which
Deposits.
$2,700,033
3,192,970
14,223,103 10' '
23i > ( J4 .lisa 50'
31,882,551 lil'
TOTAI , Niw YOHK STATK.
Notes.
$12,005,824 07 %
14,4(54.023 ( 50
9,9:17,002 : 43
27,920,2 < ; 3 34
31,974,97728
28,239,1150 , 20
Deposits.
* 5,788,101
14,384,230 50'
ia.2ia.a2. ! 57'
5:1,092,447 : 00'
81,0150,090 72'
110,001,578 SO'
preference for that form of currency
among those largely engaged in the
larger commercial and financial enter
prises. This has resulted , practically ,
in a division of our population upon the
question of form of currency along
lines which coincide to a remarkable
degree with the distinction between the
commercial and non-commercial
- com
munities between the city and country
districts.
It is not intended by this to suggest
that there is not an important part of
the business of the cities as well as of the
country which can be carried on. only
by the use of actual money or credit
currency in the form of notes. Such ,
indeed , are all the minor transactions ,
the payment of labor , and in the city ,
perhaps , to an ever greater extent that
in the country , the largest share of the
retail trade. But beyond all transac
tions of this character , which are com
mon to both city and country , there re-
* The development of the system of deposit currency in the United States , and its relative
importance as compared with the note currency , may be seen from the following table :
Year.
1835. . . .
1845. . .
1855. . .
1800 . .
1805. . .
1870. . .
1875 .
18SO
1885. . .
1890. . .
1805 . .
Note Currency.
$103,000,000
89,000,000
180.000,0 0
207,000,000
ai4oooooo
292,000,000
ais.ooo.ooo
ai7oooooo
2C8OOU,000
122,000,000
182,000,000
Deposit Currency.
$ 83,000,000
88,000,000
1WOCO,000 )
253,000,000
8411,000,000
815,000,000
1,102,000,000
i.aio.ooo.oto
1,1)38,000,000 )
2,711,000,000
3,295,000,000
Total Currency.
$180,000,000
177,000,000
370,000,000
400,000,000
1,103,000,000
1,107,000,000
1,480.000,000
1,027,000,000
2,200,000,000
2,833,000,000
3,477,000,000
Percentage of Total.
Notes.
55
50
49
45
27
20
21
10
12
5
5
Deposits.
45
50
51
55
73
74
70
81
88
95
95
Under the head "Deposit Currency , " the deposits of savings banks are , of course , not in
cluded : because they are not subject to check , and thus are not able to perform currency
functions. The statistics for 1835-1800 , are from the Reports of the Secretary of the Treasury
on the Condition of State Banks , those for 1805 and 1870 include , in addition to the deposits of
the National banks , $300,000,000 as an estimate of the deposits of State and Private hanks and
trust companies. For 1875-1895 the figures are from the report of the Monetary Commission
( p. 175. ) They include for the years 1885-95 an estimate of Jf3CO,000OCO for the deposits of private
bankers , not ofllcially reported since 1882.