' & & "W 3S &K < 3SEailfent ! spsiBESsi fss j - JKAtsta.w . - ' , -
t f # ; ; A ? rTTt&M * . - - - - - ; - .
The Conservative.
mains a great field of activity iu which
the habits of the country require the use
of notes , while in the cities the busi
ness is carried on through the medium of
deposits.
A further analysis of the conditions in
Now York state in regard to this pre
ference for one or the other form of
currency will make this more clear. In
the foregoing table there is given not
only the movement iu the state as a
whole toward a greater use of the de
posit currency , but also a classification
each year showing the use of each kind
of currency by Now York City banks
separately from the remaining banks of
the stale. With the development of
more important commercial centers out
side of Now York City , the proportion
of deposit to note currency naturally
rose.
rose.Yet the movement in the city of New
York was even more marked ; while at
every period the notes in the country
districts fill relatively a much larger
part of the field than they do in the
city , and increasingly so ; so that it
clearly appears that nmong the more
distinctly commercial communities the
preference for deposits was constantly
maintained and strengthened.
Carrying the analysis further , it ap
pears that in December , I860 , of the
$20,240,800 of notes and $81,882,551 of
deposits attributed to banks outside of
Now York City , § 4,55(5,950 ( of notes and
$15,259,5(54 of deposits belonged to the
banks in the five next largest cities
( Albany , Brooklyn , Buffalo , Rochester
and Troy ) . Here the proportion is 23
per cent notes to 77 per cent deposits.
Iu the seventeen cities next in si/.e the
note circulation was § 4,887,111 and the
deposits $5,099,758 still a preference
for deposits over notes in the proportion
of 54 to 40. After taking out the banks
in these cities , the currency of the re
maining sections is $10,700,289 of not ° s
and $10,912,259 of deposits nearly
evenly divided If this analysis were to
be carried still further it would bo
found that scattered throughout the
smaller towns in the state there were
included in this remainder 70 banks
whoso note circulation amounted to
$0,004,715 , and the deposits to $3,273,340
which , iu the more distinctly rural
communities of Now York , gives a pre
ference for notes over deposits in the
proportion of 05 per cent to 35 per cent.
As contrasted with this we have in New
York City the opposite preference for
deposits over notes iu the proportion of
91 tofl.f
j-This showing is manifestly defective in
some particulars. For instance , throughout
homo of the rural sections of the shtto the lack
of adequate savings hanks unquestionably
added something to the deposits of the local
commercial banks of a character which can
hardly bu called currency in the sense that
active commercial deposits deserve the name.
This explains the existence of comparatively
largo deposits in some banks which did not
servo a distinctly commercial community. If
all deposits of this character were to bo elimi
nated from the table as being in the nature of
savings baijks accounts , rather than currency ,
the result would oven more clearly shosv the
deposits to constitute the currency of the city :
again , a considerable portion of the notes of
IJew York City banks are known to have been
in circulation in the West. TUPSO , however ,
may bo assumed to bo offset by , country bank
notes circulating in Now York City.
Illustration from IlIlnolOHiiiikH 1809.
This question cannot bo thrown aside
as one affecting only the population of a
generation ago. The preference still
continues. Iu the cities deposit ac
counts and the use of checks are very
general ; and though the spread of com
merce and consequent extension of com
mercial customs have brought the use
of the deposit and check to hundreds
and thousands throughout the smaller
cities and towns of the country , there
are still territories ( especially among
agricultural districts ) where their em
ployment is unusual except by the
merchants and professional men. In all
those districts credit currency for general
use must bo in the form of notes , at
least until affeotve by the slow change
of business habits which alone can make
them deposit-using communities.
To take the more recent illustration
( although its force is seriously impaired
by the restrictions which our present
laws place upon the employment of
bank note currency in excess of those
placed upon the xise of deposits ) , con
sider the bank currency of the national
banks of Illinois as shown by the report
of the comptroller of the currency for
August 3 , 1899. Grouping the 201
banks outside the city of Chicago
separately from the 10 in the city , the
situation on August 3 , 1899 , was as
follows :
ASSKTS.
Loans and Discounts. . .
U S. Bonds
K"hurve ( .in. reserve ngts )
Uthor a.s ots
Chicago
Bunks.
$ lHOlfl0.f > n ( ]
2j7oboC !
12,28TiK \ ( >
Banks Out'
side Chi
cago.
i55,077,582 ?
(0,75tiM ! : >
u'jOtf'flM
$102fl. > 8fll2
From this it will appear that the
Illinois banks ontsido Chicago , ou a
smaller capital , issue almost ten times
as much bank note currency as the
Chicago banks ; while the latter have
considerably moro than three times as
large deposits as the country banks out
side.
side.This
This is merely a straw to indicate
which way the wind blows ; for , as will
be shown subsequently , the use of the
note currency has been repressed by
certain features of our legislation to be
enumerated later , and the sections which
would otherwise have made largest use
of this form of currency have been
forced to forego its employment except
at excessive cost.
Freedom of Development of Deposit
Currency.
But whatever the burdens placed up
on the issue of notes , they have not been
laid on the use of deposits. Those who
have choseu to utilize that form of bank
liability as the currency with which to
transact their business have been left
free to do so without any serious burden
or restraint. The result has been the cre
ation of an immense volume of this de
sifc'fcirfjeucy the natural outgrowth
"
iSjf
of busiue rmethods. So great has been
the freeddof allowed iu the develop
ment that the-1'commercial communities
( whose currency ji almost entirely de
posits , and whose business is most large
ly done with that currency by the use
of checks and drafts ) have/little , causb
to complain about government inter
ference with the currency tools they use ,
or about legislative restrictions upon
their method of doing business.
The result has bseu of incalculable
benefit to the communities iu which
this currency is employed. The com
mercial deposits of the banks in the city
of New York alone approximated $1,200-
000,000 ou Jan. 1 , 1899. This enables
the banks of that city to loan iu one
way or another $900,000,000 more than
they could have doue without those de
posits. The community has received
the larger share of the economic gains re
sulting therefrom , iu the shape of lower
interest rates.
Under our system of free competition ,
the rate of interest on bank loans can
not be kopfc permanently above the
point where the return upon the aggregate -
gate loans ( including deposits as well as
original capital ) will cover the cost of
carrying ou the banking business and
make the ordinary return upon the
capital invested. Take , for example , a
city bank of $1,000,000 capital
LlAHIMTIKS.
Capital and Surplus ,
Hank Note Circulation
Deposits , Individual
Deposits , Bank
Other Liabilities
Chicago
Banks.
$ ; 50,508,4SO
OTIWi
103,121,005
100 , 2r,520
IA'50,7.1' . '
$240,8S:8,003 :
Banks Out
side Chi
cago.
$20,850,185
( ! , ! ! 51,217
05,1)80,111 )
llfJOl.KM
$102,028,042
surplus and $4,000,000 deposits , its busi
ness being conducted at a cost for in
terest and expenses of $75,000 a year.
A dividend of G per cout upon the
capital would require a not income of
$00,000 or a gross income of $185,000 to
meet the expenses and provide for a G
per cent dividend. Against the $4,000 ,
000 deposits the bank would have to
reserve , say , $1,000,000 leaving , with
the capital , $4,000,000 for loans or other
investments. If this could bo so in
vested as to produce an average income
of 3 > { 6 per cent per annum , it will be
seen that the required $185,000 would be
obtained. If such an amount could not
bo invested so as to average 8 per
cent , the net income of the bank would
not equal G per cent upon the capital
invested , and capital would be dis
couraged from going into banking if
there wore other enterprises iu which G
per cent could bo obtained. If , on the
other hand , it could be so invested as to
produce 4 per cent , the not income
would bo not merely $00,000 , but $85,000
equivalent to 8) per cent upon the
capital invested. Such a condition
would encourage the investment of more