ON OUR BANKING SYSTEM. 329 



deposits in actual money whicli it retains to meet current de- 

 mands, coins, or circulating notes, to the amount of two hundred 

 dollars, B may have employed C, a contractor, to make some re- 

 pairs at his place of business, and he gives C a check on the bank 

 for ninety dollars. C also has an account at the bank and de- 

 posits the check to his credit. The bank on its books charges B 

 with ninety dollars and credits C with ninety dollars. B's debt to 

 C has been paid withoiit the use of money at all, the bank, in this 

 instance, acting as a register of the exchange of human effort. B 

 may have purchased goods in New York from X Y & Co. to the 

 value of three hundred dollars. He delivers a check to his bank 

 for that amount, and the bank delivers to him a draft on its cor- 

 respondent bank in New York for three hundred dollars. B mails 

 the draft to X Y & Co., who have an account at the bank on 

 which it is drawn, and deposit it in that bank to their credit. 

 This bank charges the original bank on its books with three hun- 

 dred dollars, and credits X Y & Co. on its books with three hun- 

 dred dollars. No money has been used in the entire transaction. 

 Kepresentatives of value based upon the note of A to B have 

 caused the transfer of credits in the books of the original bank 

 and in the books of the New York bank. 



These instances indicate the manner in which, by the aid of 

 the banking system, the exchange of the results of hunjan effort 

 is promoted to an extent far transcending the possibilities of ex- 

 change effected only by the use of coins or by the direct represent- 

 atives of coins. By means of checks and drafts based on book 

 credits in banks that are based on the assurance of the result of 

 human effort as given by promissory notes, a very considerable 

 portion of the commerce of civilization is forwarded, the propor- 

 tion of exchanges effected by coins or the direct representatives 

 of" coins being in constantly decreasing ratio to the total value of 

 exchanges. But, as when there is a scarcity of coin among the 

 members of a race who have progressed to the use of coin, the 

 exchange of effort between them is hindered and reverts to bar- 

 ter ; as, when there becomes a scarcity of circulating notes among 

 a nation accustomed to their use, commerce and manufacturing 

 are restricted because, in the absence of other expedients, ex- 

 changes are necessarily conducted by coin, so in our banking de- 

 velopment, when promissory notes and other securities are re- 

 garded with distrust by the banks upon which is devolving the 

 most of the burden of directly or indirectly supplying the money 

 needed in a community, there is a restriction of the exchange of 

 human effort. Manufacture and commerce are retarded, and are 

 forced to the exclusive use of coins or their direct representatives. 



A most important point of the banking problem, therefore, is 

 the regulation of discounts in such a manner that the commerce 



TOL, XLIX. 27 



