The Ohio Democrat. [volume] (Canal Dover, Ohio) 1840-1900, 1841-08-19
SECTInN Ill.

Particular cases will serve 10 elucidste the
principles Of commercial baking, and show
the difference between il aud other kinds OF
banking.
We shah suppose The reader TO be acquaiut-
ed with the mode in which, when banks are
introduced into a country, their paper lie made
TO suPPlv the Plaoe Of the specie prev 'Ously in
[ circulation: and we shall not stop 10 inquire
whether the new distribution of capital thus
effected is that which is most advantag geOus to
the community, or precisely equitable IN all its
aspects. We will take tho system as sstab-
lishsd, and select single bank in the Interior
of MaryIandto illustrate its operations.
A miller, al or near Hagerstown, has wheat
offered 10 him by The neighboring farmers, sBy
of the value Of one thousand dollars. He
has npI cash on hand wherewth TO make
the, purchase, but he has note, bill, or ac>
eePtanee, for 1000 dollars, given TO him by
factor at Baltimore, to whom he had made his
last consignment Of flour. He has this note
or bill discounted by the bank, and with the
proceeds purchases the wheat. The farmers
take the bank notes, pay them out TO the me.
chanieS end traders with whom they have
dealings, and the notes, after having circulat-
ed for time in the neighbOrhOod of Hagers.
town, at length reach Baltimore They
are, in all probability, carried TO that city by
the stiagerstown storekeepets, and exchanged
for dry goods and Groceries. The merchants
of Baltimore deposit them in their baDks, aud
and the Bank of Hsgerstown thus becomes
debtor TO the banks Of Baltimore, in tho
sum Of 1900 dollars, Bu, this is balanced by
tho note or bill ofthe -four actor for 1000 dol
lara, which the Hagerstown Bank had
sent on for collection The trade between
ilsgersiown and Baltimore is an exchange
Of -four for dry goods aad Groceries, and the
value Of the same is expressed IN tho note Of
hand, or bill of exchange, given by the Bslii-
more -four factor, and 10 the bank notes is-
sued at tlagerstowD. which fern together the
medium Of that trade
Thls is what is called "simply making ad-
vances," or "stiording facilities" The mil
ler has capital Of his own, invested in -four
al Baltimore But he caonot use this IN The
purchase Of wheat at his null door. The farm
eIs do mol want -four, or if they do, he has It
not at hand 10 supply them. Bu, they want 10
make urchases from The ttofekeepere, and
the circulating credit of The bank will answer
their purposes. The bsnk has moi lent capi-
tai 10 the miller, for it had none TO lend, hav-
ing previously invested in permanent secuIi,
ties all It's original funds. /, lends lis credit;
and il has a double security that the credit il
lends will be sustained; fist, in the -four at
Baltlmsro Of the value OF which the bill or
nole Of the factor is the alive; and
secondly, in the wheat purchased by the miller,
ot the value oC which the notes issued by the
hagerst0wh Bank, are the representatives.
This ls III oushout business transact ion, and
, tits IN a,sici eoTfCrm,ty with the principles Of
commercial banking. G+-4I,a NJ ~, ,''--''sr7--'-
But fake another case. The miller wishes
10 make IAN an addition to bls mil, and for
his purpose requires 5000 dollars. The bank
lends him the amount on a note drawn by an
o1liging friend, and irdorsed by himself. Here
blnk notes are issuod, not az representatives
f a value already existing, but of q va!ue 10
be created by labor Beiore.hal value can be
created, that is, before the new mill can be
brought yield an income, the bank notes find
their way in the natural csurso Of trade, TO
Baltimore. But there is no -four here now, IS
in the former case, 10 constitute fund for tho
redemption Of the notes. Even after the mill
shall be completed, it cannot be transferred 10
l}alnmore.
Suppose fifty operations Of this kind to take
place. and it is evidtn that the balance will be
thrown greatly against Elsgerstown. Blu, a
very few. such operations would derange Tho
course of exchanges. According to The theo.
Ty Of commercial banking, Ywhe, banks
'di'count all good business paper Of short dates
that is offered, and no other. the channels of
circulation are exactly full. But tits plain that
when vessel is full, very few drops in addi-
ton will cause an overflow. Let bank have
10000 dollars of specie IN lie vaults, and
circulation Of 100000 dollars, and suppose
this 10 be exactly adapted TO the business of
the community. Then lei it make an addition
Of but ten per cent 10 ts circulation. lncon-
siderable as this addition may seem, il may
be sufficient TO drain the bank OF all its epecio.
Apply these principles to The banks in two
more distant parts Of our Union, ssy New
York and Mississippi. The trade is much
more round about than that between Hsgers-
town and Baltimore, butitis in reality fouRd-
ed on the same principles. Let US trace lis
regular course.
A merchant from Natchez repairs''to New
York, and purchases 100000 dollars worth
of goods, giving his notes or bills for the same.
The New York merchant has these notes or
bills discounted by bank, and with the pro.
cseds purchases bills Of exchange on Eng
land, through which he either pave an old
debt due in that country, or procures fresh
suPpIy Of foreign commodities. The Mis-
-