The workingman's advocate. [volume] (Chicago [Ill.]) 1864-1877, 1870-02-05
I New Monetary System,
CHAPTER IV.-SEcTIoN ".
RI EDwARH HELL Ga

The Management of the Banks and The
Prosperity Of TTods and Prod'ecttre
Industry.
CONTINUED.
When scarcity of money commences in
Wall street, the offerings of paper to be dis
counted at the banks are greatly increased,
sometimes fifty, sometimes a hundred per
cent. The reason is this: when banks
stop discounting long paper, and con6ne
their loans to paper having thirty, sixty, or
ninety days to run, in order to maintain their
circulations, the discounts must be increased
Just in proportion to the shortening of the
paper. If the banks discount paper having
only sixty days to run, then in the sixty
days they will collect in the whole amount
under discount. If their loans heve on an
average only ten days, then in ten days
they will collect all their loans, and will not
have dollar under discount unless they
lend out as well as collect in daily. If they
should discount no paper having more than
one day to run, they would collect in all
their loans every day, and must reloan
the same amount daily to maintain their cir
culatiOns Therefore, it is evident that if
the hanks maintain their lines Of discount
they mnst be increased exactly in proportion
10 the shortness Of the paper that is dis
counted. Suppose merchant has 81 900
to pay, and holds business note for 81 900,
payable in six months. To obtain a dis
count he is compelled to procure another
note, having not more than sixty DAYS to
run At the end ofsixty days be must pro-
cure second discount for thousand dol
lars to pay tue first, and in sixty days more
a third to pay the second. In six months be
is obliged to procure three loans Of thou
sand dollars each and pay three thousand
dollars, whereas, if the bank bad discounted
the six months note be would have procured
but one discount for a thousand dollars
Consequently, during the six months he
would have offered but one-third as much
money would have been required to make
his payments.
The interest on money will sometimes rise
in few months from six or seven per cent.
per annum, to two or three per cent.
month. In 1887, broker in Wall street
sold the post-notes Of the Delaware and
Hudson Canal Bank, having four months
to run, at a discount Of FIVE per cent.
month and sold more notes the next day,
for the same person, at six and a quarter
per cent. a month. Six and quarter per
cent a month, for four months, would take
one-fourtb from the principal Of the note.
This is equivalent to compelling a tenant to
pay in advance One-fOurth of the value of
house, or farm, for the use or rent Of three
fourths during a period of four months. at
the end of which he is responsible for the
return of the whole for the return of the
fourth Of which be had not the use, as we'll
A. Of the three-fourths which were in his
possession. The borrower of the money
received but three-fOurths of the par value of
the notes. If at the end Of the four
months. when the postnotes became due,
the bank bad not paid them, the borrower
would have been bound to pay their par
value. As well might the tenant pay as
exOrbitant a rent for house or farm, as the
borrower of money so high rate of interest
These high rates Of interest are not paid by
all. Doubtless. favorites at bank could and |
did borrow money the same day in Wall
street at seven per cent. per annum. The
Delaware and Hudson Bank was solvent |
and good at the period named, and has SO
At their maturity, if not before,
The post-notes were paid. The money lent
At SIX and quarter per cent. a month was
no better than that lent at seven per cent
per annum. Take from a 1000 post-note
$3.50, and there remains S75C, of which the
borrower had the use for months, by paying
he lender $3.50. The favored one who
borrowed at bank $3.50 at seven per cent.
interest per annum, paid for its use for four
months $3.50. The first borrower paid
thirteen times more than the second for the
Use Of the same article, in the same street,
md OH the same day. Neither bought any
hing but the use of the principal, for at the
nd Of the period the principal was returned
o its owner. A man who was obliged to
,orrow money was charged thirteen times
more than one who had no use for it except
D gain the difference in interest. This pro-
edure was as unjust as it would have been
0 charge men suffering for food $3.50 a
ushel for potatoes, and to charge those who
assessed an abundance only fifty cents.
uch exactions do not occur in sales of pro-
nets. bat Il Ia no uncommon thing in Wall