328 POPULAR SCIENCE MONTHLY. 



honest and competent to receive and record deposits and to make 

 payments with accuracy. That the strong and well-guarded 

 vaults of modern banks meet the first of these points is evidenced 

 by the decreasing list of bank robberies that are accomplished by 

 physical force. The examination of bank employees' character, 

 that has become the more searching and rigid as the operations 

 of guarantee companies have extended, is causing defalcations 

 through the direct stealing of funds to become constantly fewer. 



As banks have become more numerous, the use of checks has 

 increased. Between office and store, factory and warehouse, bank 

 and bank, city and city, millions of these pieces of paper are con- 

 tinually in transit, furthering the exchange of human effort. The 

 interlinking of banks as correspondents and the growth of clear- 

 ing houses have formed a mechanism whereby their payment is 

 effected with celerity. 



But the actual deposits of a bank are increased by the proceeds 

 of loans which it makes and which are frequently placed to the 

 credit of the borrower the same as though money had actually 

 been deposited by him. For example : A bank discounts a note 

 from A to B at sixty days for one thousand dollars. The pro- 

 ceeds, amounting to nine hundred and ninety dollars, may not be 

 instantly needed by B ; the amount is placed to his credit for him 

 to check against — that is, nine hundred and ninety dollars is placed 

 to his credit on the books of the bank. As his checks come in he 

 is charged with their amount on the books of the bank. In this 

 way he obtains from the bank the use of nine hundred and ninety 

 dollars ; or, to speak more accurately, the bank is the guarantor 

 of representatives of value issued by him to the extent of nine 

 hundred and ninety dollars. He has deposited no money. What 

 he has deposited has been a promissory note— that is, a promise 

 to produce the result of human effort of which he can dispose for 

 at least the value of the note. As a bank's profits are largely 

 made by discounting notes, a very considerable portion of the 

 checks issued against every bank, therefore, are not drawn against 

 money deposited in it, but against credits in its books, which are 

 based upon the assurance of the forthcoming of the result of hu- 

 man effort. And therefore a vast proportion of all the checks 

 that flit between store and office, city and city, are based, not upon 

 cash directly, but upon the guarantee of a bank that it will accept 

 checks to the valwe of the result of human effort, the assurance of 

 the production of which has been discounted or purchased by it 

 and held as the basis for its guarantee. 



In the case specified, the exhaustion of his credit by B might 

 be somewhat as follows : At the end of the week, to pay his em- 

 ployees, he may draw tv^^o hundred dollars from the bank. In 

 this instance the bank advances to him out of that portion of its 



