ON OUR BANKING SYSTEM. 331 



proceeds of their sale; or a man, far-sighted, energetic, and care- 

 ful, may perceive opportunity for profit if he could obtain the 

 requisite material or the requisite tools or requisite help of other 

 kinds. By having a note discounted, he obtains the requisite 

 help and pays the note when the opportunity has been realized. 

 In these instances, the discount of notes has contributed to the 

 production and distribution of needed commodities. The pro- 

 ducers have obtained profit, their employees have obtained wages ; 

 railways, vessels, and factories have been used with emolument 

 to their owners and employees, and thousands of people have 

 been placed in possession of food, fuel, and clothing. 



But where there is a chance for profit, there also is a chance 

 for loss. Flood may ruin the cotton crop, the markets may be- 

 come so glutted that neither grain nor coal can be sold except at 

 a greatly depreciated price ; the merchant may be stricken in 

 health ; even the energetic, careful, and far-sighted man may have 

 miscalculated his opportunity. In such cases, the result of human 

 effort to the value of the notes may not be forthcoming ; the as- 

 surance fail of performance ; the notes can not be met. When 

 representatives of value are based upon the promised result of 

 human effort which does not materialize, they are worthless un- 

 less there is an ultimate basis of realized result. This realized 

 result may be the property of signers or indorsers taken by the 

 bank to make the value of the notes good ; it may be of the capi- 

 tal or surplus of the bank or property of the stockholders who are 

 liable for double the amount of their holdings ; or, in the last re- 

 sort, the loss falls upon individuals of the public in general. 



Concerned, therefore, in the conduct of a bank are the stock- 

 holders, who profit by its prosperity and share its losses ; the de- 

 positors, whose funds are in its custody, and the public in general ; 

 and an important phase of the banking problem is presented by 

 three points : First, the necessity for a bank to keep on hand suf- 

 ficient actual money wherewith to meet checks and drafts upon it 

 that must be paid in actual money; second, the necessity for 

 furthering the exchange of human effort and thereby making as 

 large profits as possible by maintaining as large a line of discount 

 at all times as may be prudent ; third, to make no loans except 

 upon adequate security. 



When a bank discounts a note, its first consideration, of course, 

 is the probability of the note being paid — that is, it desires to be 

 reasonably sure that the transaction which the note covers will 

 yield enough to cancel it. To this end it is obliged to rely largely 

 upon the reputation for ability and honesty of the drawer and in- 

 dorser, for it can not enter into the details of every transaction ; 

 but a general knowledge of prices and markets is useful, that it 

 n? ->.y not be overflooded with paper in any particular line of in- 



