ON OUR BANKING SYSTE3I. 333 



gregate thousands of dollars in payment therefor ; it gives four 

 months' notes to the railroad company, aggregating thousands of 

 dollars, in payment for the freight to the docks. The coal pro- 

 ducers, to obtain ready money wherewith to run their mines, dis- 

 count the notes obtained from the shipping company in their 

 banks. The railroad company, to obtain ready money wherewith 

 to meet its expenses, discounts the notes obtained from the coal 

 company for freight in its different banks. It is the intention of 

 the coal-shipping company to pay the notes for coal and the notes 

 for freight when the coal which it has shipped is sold, but, finding 

 it easy to issue notes, it buys and ships more coal than it can sell 

 at remunerative prices, or for immediate returns, and when its 

 notes are due it can not pay them all. To retain its credit with 

 the coal producers, it pays the notes given to them, but it then can 

 not pay all the notes given the railroad company. To meet the 

 situation, the railroad company and the coal company exchange 

 notes — that is, for example, suppose there be notes amounting to 

 forty thousand dollars of the coal company to the railroad com- 

 pany coming due, and the coal company can pay but twenty 

 thousand dollars. To meet the other twenty thousand dollars, 

 which may be in two notes of ten thousand dollars each, which 

 have been discounted by the railroad company at the P National 

 and the Q National Banks, the railroad company gives the coal 

 company two notes each for ten thousand dollars, and the coal com- 

 pany gives the railroad company two notes each for ten thousand 

 dollars. One note of the coal company to the railroad company is 

 discounted at the R National and the other R,t the S National Bank, 

 and the treasurer of the railroad company, by that part of the 

 transaction, is in possession of twenty thousand dollars, less the 

 discount, which he badly needs to help pay interest on an over- 

 burden of bonds and bills and long-overdue wages to employees. 

 One note of the railroad company to the coal company is dis- 

 counted at the T National and the other at the U National Bank, 

 and the proceeds, amounting to nearly twenty thousand dollars, 

 in connection with the twenty thousand dollars already in its 

 treasury, enable the coal company to meet the maturing notes to 

 the railroad company for forty thousand dollars. The bank in 

 which they are paid and the P National and Q National Banks at 

 which they have been discounted have their belief in the ability 

 of the coal company to meet its obligations strengthened, because 

 it appears that the coal company is paying its notes. But this is 

 not really so, for only one half of its original notes has been paid, 

 and the notes exchanged, representing a liability of forty thou- 

 sand dollars, leave the amount of discounts in various banks the 

 same as when the original notes of forty thousand dollars of the 

 coal company to the railroad company were discounted. 



