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are effected. The mode of proceeding by which this is done is exceedingly complicated and difficult of analysis, though the principle on which it rests is simple. Commerce is an exchange of commodities-the merchant purchases to sell, the manufacturer purchases raw material and sells his manufactured goods. This is chiefly done under the credit system; the individuals engaged give their promissory notes, or bills of exchange, for what they purchase, and take those of the purchasers for what they sell. Every such person is debtor for what he purchases and creditor for the amount he sells. So far as the payments of his business are concerned, it becomes the chief object of each one to apply the securities or paper he has taken to pay or discharge that which he has given. This is mainly effected upon the books of banks and dealers in commercial paper. These agents, or intermediates in the business of payment, give credit on their books for commercial securities, deducting interest until their maturity, the effect of which is to form a fund of credit upon which the previous holders of the paper can draw at once in sums to suit their purposes. The fund thus formed is that which is chiefly employed in payment of debts. It is known by the name of deposits, and paying by checks on these deposits is the chief process of adjustment. Debtors are thus enabled to apply the paper they take in payment of that which they give, and the same individuals being, to a large extent, both debtors and creditors upon commercial paper thus converted into a paying fund, they pay their debts by a check upon their credits, which is equivalent to a direct set off. The great and rapid circulation which these deposits attain makes them available for vast amounts of payments where mere set off would not be applicable. Being the chief fund in which debts are paid, and being the cheapest and most convenient means of payment, their value is sustained by constant and pressing demand for that purpose.

It is obvious that the fund thus employed is adequate to the whole payment to be effected; for every debt implies an equal credit, and if the credits were all discounted they would furnish a sum equal to the debts, less only the interest. As the proceeds of the discounted paper circulate freely on the books of the banks, they pay an amount of debts far exceeding their nominal aggregate.

The creditor is fully satisfied with this payment, for he receives what is due to him in the same in fund which he pays what he owes. If not satisfied with the payment offered, each creditor may exact payment in gold or silver-an exaction so rarely made as to show that the substitutes are effective and satisfactory. Commerce is, then, a virtual exchange of commodities: men deliver what they sell, that they may be able to pay for what they purchase, and the payments involved in this commerce, so far as it is carried on by the credit system, are an exchange of credits for debts, by which both credits and debts are extinguished. The process of creating and extinguishing debts and credits thus goes on in strict correspondence with the progress of industry and trade.

By the agency of banks in discounting commercial paper, which means giving a credit on their books for the amount of the paper, less the interest to maturity, an immense fund is created, susceptible of the most rapid circulation which can be given to anything that is called currency. The great mass of the commercial payments, perhaps nine-tenths of the whole, is made in this fund. It is, therefore, the fund which is specially

sought for that purpose. There is no other existing currency in which these payments could be effectually made. It is important to notice that it is the demand for this fund or currency which determines the rate of interest, so far as it fluctuates in the money market.

A facility for this mode of payment exists, heretofore the subject of too little notice, without which it could not be so effective, and perhaps could not be employed at all. This is what merchants call Money of Account, which, owing to mercantile usage and the mental habits of people acquainted with arithmetic, is always employed in bookkeeping in naming prices and in stating amounts. By the use of figures, whether in tables of statistics, or upon the face of commercial paper, or in any other way, the money of account is employed so to express sums of any amount that they are appreciated and understood at a glance. Every money of account had its origin in some unit of value fixed by law, convention, or usage. The continued use of such a unit, whether at first a coin, or weight, or any other thing by reference to which prices are currently expressed, soon fastens upon the minds of those using it such a distinct impression of the value intended that it can subsequently be used abstractly and without any actual reference to the material value at first included in the unit. This abstract use of the unit of value is so easy and so consonant to the mental processes of a people familiar with arithmetic, that an inveterate mental habit supervenes, and this unit of value becomes as familiar to the mind as the units of arithmetic, and quite as susceptible of addition, multiplication, and division by whole numbers and fractions. Experience proves that a unit of value is as easily borne in the mind as the powers of the numerals themselves, and close observation evinces that the universal habit is to express values and sums, or amounts, as we express numbers abstractly. Hence, an extreme facility of expression and comprehension in all commercial and financial statements. This abstract mode of expression is not readily perceived where the current coin corresponds in value with the denominations of the money account. There are in Europe many moneys of account to which no coins correspond. The mark banco of Hamburg, in which the deposits of the bank there are kept, has no corresponding coin. In England, previous to 1816, there was no coin of the value of a pound sterling. There were no coins corresponding to the moneys of account employed by our American colonies before their independence, neither did their pounds, shillings, and pence correspond with each other or with those of the parent country.

For the purpose of illustration, let us suppose two persons dealing largely with each other upon mutual credit. The prices of their respective commodities, expressed in a moment and understood as quickly, are debited to the respective purchasers in the seller's books of account. The articles thus sold and charged have been, according to their various kinds, subjected to the measurement of yards, feet, inches, acres, bushels, gallons, or barrels, or to weight by tons, pounds, or ounces, and the price and sum of all these ascertained quantities accurately written down or expressed in the money of account. When these persons balance their accounts every debt is paid except the balance, which may fall either way. Neither gold nor silver has lent any aid to these payments. Neither of these metals have been weighed, measured, counted, nor delivered in payment. The amounts balanced may have been kept in a

money of account which never had any corresponding coins, as, for instance, that of the colony of Pennsylvania previous to the adoption of the dollar unit. All the commodities which in this case changed hands have had actual measures applied to them; but the nominal money employed to express the prices and amount existed only in idea, and was only employed as a means of expression and comparison.

The subject of banking occupies much space in this work; it is treated exclusively in the aspect of the agency of banks, in effecting payments by devices and modes of adjustment which do not require the employment of the precious metals. The main efficiency of banks for this purpose consists, as we have before said, in their enabling men to convert their business or commercial paper into a transferable fund applicable to the payment of debts; in enabling them to employ their credits-the debts which others owe to them, in paying the debts which they owe to others. This is the office or function of that vast fund which stands on the books of the banks under the name of deposits. Credits and debts are counterparts-that is, there being two parties to each debt and credit, one is always a debtor and the other always a creditor. All the credits include all the debts, and all the debts include all the credits. A fund formed of all the credits will, of course, pay all the debts; but, although all the credits may never be discounted so as to become a fund of deposits, yet much the largest portion pass through the hands of banks, either public or private, and thus provide the means of their own payment. Banks, in giving a credit on their books for promissory notes, do not thereby convert them into money, but into a fund transferable by written order of the holder to any amount at his pleasure. The banks take the promissory notes and furnish, upon that security, an open credit for the amount, and they surrender each note upon the return of an equal amount of the credit on their books. Their commission for the accommodation afforded is the discount. There is nothing hard to understand in the resort to this very efficient and economical mode of paying debts. The credits opened with their customers by the banks imply that there are debtors for the whole amount of credits, and to a large extent these debtors are the holders of the credits. All such are thus prepared to pay their debts by the surrender or transfer of their credits. It is thus strictly a private business operation, which can be done upon the books of individuals as validly as upon the books of banks. These bank credits do not become money, but they become a currency the most efficient ever yet devised. This currency is very different from that of bank notes; it does not require for its successful use any such banking system as that now existing in the United States, or elsewhere, having the power to issue bank notes as a currency.

Any man of sufficient credit, enjoying the confidence of those around him, could open an account with his neighbors, giving them credits on his books for their commercial paper, and these customers could draw upon this fund to pay all their notes held by him, or pay able to him. A banker thus constituted could fulfill every function of the deposits of a bank, so far as they are derived from the discount of commercial securities.

Unhappily, our present business of discount and deposit, or commercial adjustment, is complicated with a system of banking in which bank notes are issued for circulation as a substitute for money. This privilege

not only demands the supervision of legislative authority, but it has proved one of the most difficult problems which has in modern times engaged the attention of that authority, to regulate, restrain, and reconcile the different functions of modern banks. These banks receive on deposit coin, bank notes, (their own and those of other banks,) checks on their own and other banks; they receive and give credit in deposit account for commercial paper having yet several months to run, and for all this mingled deposit, a very small part of which, perhaps not one per cent, is gold or silver, they become responsible to pay coin on demand. This responsibility is only supposed to be good when compliance is not required; but compliance is known to be impossible.

These various functions, if not inconsistent with each other, are not susceptible of harmonious operation; whilst no one can dispute that the issue of bank notes for circulation should be held under strict public regulation, and subject to constant restraint, and that the issuing banks should, under the present system, be bound to redeem their notes on demand with coin, it is questionable how far the credit given by banks on their books for unmatured paper discounted should, in like manner, be payable on demand in coin. If men of business find it to their advantage to adjust and pay their debts in that way, the public has no more interest in preventing them than it has it prohibiting the use of bills of exchange and promissory notes. If we suppose a thousand men of business to have severally issued their notes in various sums, amounting on the average to $10,000 each, and payable at two, three, or four months, these thousand individuals may be supposed, without any great departure from what is frequently the case, to be among them the holders of the whole $10,000,000 which they owe. This large sum may be all maturing in the progress of 120 days. If the whole thousand were met together it would be impossible to effect the payment of this vast debt, although the assembly would consist of all the debtors and all the creditors, and although they would have in their hands the proper evidences of all this debt and credit, without some special device for this purpose. It could be done in the mode pursued in the Fairs at Lyons, as set forth in the chapter on these Fairs, and it might be done in other modes; but in no way could it be done more promptly and safely than by the process now pursued by our banks. This vast amount, secured by commercial paper, being discounted by banks, and the proceeds placed to the credit of the parties obtaining the discount on the books of the banks, becomes divisible and transferable to any extent, and fully competent to payment of all the securities held by the banks, and upon which they granted the credits. The banks give nothing for these securities but credits upon their books, and they can afford to give them up upon the surrender of the credits. The commission charged by the banks for this facility is merely the interest. No coin is required for this operation upon any consideration, public or private, beyond what the parties to it may for convenience choose to employ.

The individuals in the case supposed have merely converted the securities they held upon others into a fund to pay the securities which others held upon them. The operation resolves itself into bookkeeping; the parties to it have been charged and credited according to the evidences of debt and credit; the accounts arising thereon between them have been accurately stated and adjusted, and the debts have been discharged in the

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same medium of which they were at first constituted. That is, the men who were creditors upon commercial paper were paid by the proceeds of commercial paper; or the men who were creditors upon the books of the banks were paid with the same sort of credits, and the credits they were willing to receive in payment were for the same reason readily received by others from them in payment.

In principle this process of adjustment by the agency of bank deposits is the same as that which occurs between individuals who transact business together, and for the respective debts incurred debit each other in their books of account; when these accounts are compared and balanced, the debts on both sides are paid-debts are set off against debts and extinguished. By the process of the discount and deposit system carried on by our banks, the customers of the banks apply the debts which are owing to them to pay what they owe others; the whole process is one of exchanging debts for debts, and thus discharging them as effectually and finally as if paid in gold. This operation being a business of a purely private nature, and deserving of all encouragement as being the most economical method of exchange ever devised, should be regarded with the utmost favor both by people and governments. In this country at least two-thirds in amount of the current payments are thus effected.

There is no more necessity of public restraints or supervision in this business than there is in the transactions out of which these debts and credits arise. So long as a man's own debts are to be regarded as a good currency to pay him with, and he is willing to receive such payment, the public can have no interest in the matter but to encourage it as the greatest possible facility to trade, and one of the strongest supports of industry.

The efficacy of the circulation of deposits as a mode of payment is strongly evinced by the operations of the banks in New York and other large cities. In New York, for a year past, the deposits have averaged over eighty millions of dollars, whilst the specie has averaged only twentyfive millions. The activity of these deposits, as a medium of payment, is shown by the movements of the Clearing-house. The daily average clearing has been over twenty millions, whilst the daily balances scarcely exceeded a million of dollars. The circulation of the deposits shown at the Clearing-house is only that which is produced by checks paid into different banks from those on which they are drawn, and the bank notes drawn upon such checks for the purpose of payment into other banks. Besides this circulation as between the banks arising from the payment of debts in one bank by checks upon or notes of another bank, there is a large circulation of deposits in each bank confined to its own books and customers. Whether this circulation is more or less than that exhibited at the Clearing-house, we have no means of knowing. If only one-third as much, it would carry the daily payments by circulation of the deposits to thirty millions in the single city of New York. This vast amount, however, is far from exhibiting the whole daily movement of the deposits in that city; the diversity of transactions, and the uses made of deposits and checks, must attain an immense aggregate in modes not reached by any form of statistics. The actual movement of specie in New York seldom reaches two millions per day, leaving out the payments of government and the occasional movements for export, so that the pay

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