The workingman's advocate. [volume] (Chicago [Ill.]) 1864-1877, 1869-11-27
A New Monetary System,
Ny EDWARD KELLOGG
CHAPTER IV.-SEC1IlN /.
81 knN AID khLLU'''''

The AMOUNT OF SPECIE OWNED BY THl'
BANKS, AND THE INTEREST PAID BY TIN
PEOPLE ON BANK LOANS.
(ooSTNUEDD
Let US see how the specie capital Of banks
is generally made up. Suppose one bank:
70 be chartered with a specie capital Of
100000, all paid in, and to lend $780,!
600 for approved Endorsed notes. A Sc:
cOnd bank is likewise chartered with a capt
ital Of $500, 900; to make up which S40Ot
600 in specie, also drawn from it, are paid
in. The notes of the first and second banks
together With a small sum in specie, forII
the capital Of third and thus bank afte:
bank is formed, say to the number of eglt
teen, each with protested specie capitals;
while, in reality, all of them together own
only $500, 900 in specie. How is this e..
cess over the 100000 secured? The loarS
Of the first bank for 100000 were secure!l
by the same sum in specie but when 4
had lent S250,0O0 more. the excess w;as
secured by the Endorsed notes offered by the
people for discount When the second
bank had discounted $3.50, 900, the twp
banks had under discount a million and Il
half of dollars, one million Of which was S.
cured BY Endorsed notes, and but a nasf
million By sp. Gle. A third, fourth, arsl
finally eighteen ban having DISCOUNTED
$3.50, 900 each of Endorsed notes, the aggrf-
gate amount would be Sl3, 100000 Of which
100000 only would be secured by specb
and the sole security for Sl3 900, 600 woul "a
be the Endorsed notes held by the banks
against the public. Some of these DISCOUNT
ed Endorsed notes might be against stotS-
holders in the banks; but all of the4l,
whether against stockholders OF others, afe
secured by the property of their draw'.rs
and indorsers, and not by the capital of tie
banks. If thirteen, out Of thirteen andi a
half millions of dollars, are made safe tDr
the public use by these Endorsed moths
evidently the remaining half million cot:
be made safe in the same manner and We
could thus dispense with specie altogether.
If ninety-six per cent of the money is D4w
secured by'indorsed promissory notes. CIR
tainly the other four per cent. can be car
ed by similar means
The people furnish the security for tle
bank.notes, and pay the interest, which, is
the source Of all the gains Of the banks e.
and S. are men of property. r draws lis
note at six months for SO, 900, gets S ito
indorse il, and then has it discountedta at
bank. If interest be at seven per ceft.,
r. will receive only 50, $50 in bank-no. Is,
and at the maturity of the note must FAY
$4,000 to take it up the bank thus g;fns
$3.50 as the interest or rent of the bank Ies
for six months. Under no circumstances
would the bank discount the note unlest il
were deemed perfect security for the retrttn
Of the money and the payment Of the INFER
est RS note, Endorsed by S., and helfby
the bank, is secured by the property Of
these men and the bank-notes secured lby
the Endorsed notes are also secured by The
same property Of r. and 5. If the 5ahk-
notes circulate for six months, R. s indor3e
note also secures to the bank the returrf Of
1850 more than it gave for the note.
A similar illustration may be made oh a
more extended scale, say on $4,000, 600 !;
about the sum kept under discount by scime
Of the larger banks in New York Supp use
a bank to discount notes, drawn and lin
dorsed by various individuals in good ere, Bit,
for $4,000, 900, having (to simplify the pro
cess, and bring the gains under one III m)
twelve months to run. 1t would pan to
these individuals 81 Csc, 900 in bank hes
.,l tLo zoEn mn I,JrataJ 4. ~. -
would be clear gain, less the labor to nj lake
and exchange the bank-notes. If the public
need the 81 $50, 600 to meet their bus hess
obligations for the year, the money Twill
continue to circulate, and the bank will not
be called upon to redeem it, during that
period. AT the close Of the year, wher! the
Endorsed notes become due, if the d aw-
ers should collect every dollar of the Ink
notes issued, $3.50, 600 would still be '. ant
ing to pay the bank indorsed noteS for
$4,000, 900; and the people would b4 de-
pendent on the bank for further DISCOUNT
Of notes to obtain the money due a9 the
years interest. If one bank furnished all
the money of the nation, the people w3uld
be dependent on that one for money to-, full
I'll all their obligations. Increase the I; um-
Der Of banks to a thousand, and tn! in
dorsed notes 10 proportion, and the tratsac
tons will be more numerous and aI!pear
more complicated, as they actually are J but
it will not alter in the least the principles
upon which the banks gain the interest out
Of the earnings Of the public, while the ioub-
lie furnishes all the security necessary to
make the bank-notes safe to circulate as
money.
TO BE CONTINUED