The workingman's advocate. [volume] (Chicago [Ill.]) 1864-1877, 1870-03-05
A New Monet'ry System,
ar fDwARD KELL"s'

A New Monet,ry System, !,
az fDwARn kELL""s.
CHAPTER IV.--SEcrpX "
The MANAGEMENT of the Banks and NE
Effects of Ekssr Operations NpOn the
Prosperity Of Trade aad Productive
2TU-rH3 [c0c1v1e.rtupA4S3 iA4 w
when money becomes scarce. and inter-
est rises to exorbitaAt rates the rates Of eK-
change between one city and another, and
between one State and another, always in
crease. These exchanges are mersly
cover under which the banks obtain
higher rate Of interest than the one allowed
by law, and means to enable them greatly
TO increase their dividends. In 1886, the
banks 10 New York began 10 do business
Of considerable amount, by collecting notes
on the South and West. and charging
various rates o6exchange, from one to three
or four per cent. The discount at seven
per cent. ON note having three months to
run, would be Que and three-qusrters per
cent. and by .ehasging three per cent ex-
change on Georgia or other southern States,
It would amount In the three months, to four
and three quarters per csRh. v Iftbeir money
was returned free Of expense, these exchanges
were much more profitable 70 the hanks than
lending money at sasen per cent interest
per aunum.a To secare the retura Of the
money without loss or tronbls, when another
person applied for discount Of a note pay.
able ia New York. it was very easy to tell
him that the bank could not discount, that
its funds were locked up In Georgia or else
where, and that If he were wiling to
take a draft on a Georgia bank,
it would discount his note. Being com
PEELED to have the money or break, the
applicant would take the draft on Georgia,
and through broker sell it in market If
the bank did not then buy the draft back at
a discount Of three or four per cent, at
ali events by the two transactions it would
have made its funds payable in New York.
1t would have saved the exchange Of three
per cent. on the first note discounted, and
this would have amounted to about double
the legal rate of interest The banks some
times made seven or eight times more in this
way than by interest. This mode of exchang-
ing spread through the Union and in the
spring of 1887, when the New York banks
and the banks generally suspended specie
payments, the rates of exchange still in
creased.
To show that the banks pro6eed by the
embarrassments and fluctuations in 1886 and
1887, we have only to notice the per centage
profit gained by them in the State Of New
York at different periods. The published
statements IN the New York Assembly docu-
ments show that the average dividends Of
the Bank of America, for ten years, from
1918 to 1873, were $50 percent annually.
But in the years 1886 and 1887, money
was very scarce, and the difficulties Of the
community PROFESSIONALLY great. Daring
these years the profits Uf the bank averaged
more than 1914 per cent. annually. More
in one year Of embarrassment than in three
years Of general prosperity. The same
published statements of the following six
banks, viz, Bank of America, City Bank,
Mechanics Bank, Merchants Bank, Bank
Of New York, and Union Bank, show a re-
suit rs follows. During the same ten
years, from 1918 to 1928, their average
dividends were $40 per cent per annum.
But in the two years 1886 and 1887, their
profits were 1885 per cent. annually. The
same statements rendered by 6ffy-nine cOun-
try banks in this State, show that in the
same two years, their average profits were
1876 per cent. per annum.
To effect rise of interest, it is not neces-
sary for their banks to allow their money to
lie dormant any length of time. Let the
New York banks for one week refuse TO dis
count single note, and the want Of money
would probably be as great, and MS severely
felt, as during the most difficult periods in
1887. By this refusal the banks would
Ouly lose the interest on the amount collect
ed for half the week. But by the end of
the week those who needed money would be
obliged to sell paper having three, six, nine,
and twelve months to run, at a discount Of
two or three Per cent. a rnUnth. and would
be subjected to great loss. The banks in
she city Of New York keep an average Of
about $50, 100000 loaned. II the notes
thus discounted haze an average Of ffty-six
days to run, the citizens pay into the banks
six and a quarter millions Of dollars every
week. If for one week the banks should
refuse to discount, and draw in the six and
a quarter millions, they would lose the in
terest on this sum for An average Of three
and half days. This interest at SIX per
cent. would amount to 1857 go. If this
curtailmen, Of the circulation for one week
should compel merchants and mechanics to
sell their business paper, having but sixty
days to run, at two per cent. q month dis
count, they would lose four per cent. on the
sc, $1,000, i. g., $3.50. 900. The mer-
chants and che mechanics would sust~in
total loss Of $I87 800 over aad above in
terest for sixty days, ut the rate Of six per
cent per ahnum on $6,25O,000. let Us
extend this calculation, aud suppose the
banks to stop their discounts for two weeks,
and collect in their dues. In the course of
two weeks, they would collect in their dues.
ln the course oftwo weeks, they would collect
in SIS, 500 900. They would lose the interest
upon this sum for an average Of one week,
in which time the interest would amount to
$l4,230.77. These curtailmemts would
produce an extreme scarcity Of money. Sup
pose the merchants and the mechanics to be |
compelled to sell their business paper having |
six months 10 run ut discount ef two per |
cent month for that period, they would
lose twelve per cent. on tl2,5OO, 900, !. e.,
81 100000. Their actual loss over and |
above the interest, at the rate Of SIX per