The Rock Island Argus. (Rock Island, Ill.) 1877-1885, 1878-02-09
Saturday. February Q. 1873.
Discount Banking.

thing to devise the means OF doing it, 1t
is one thing to assent to a principle, and
another to bring it into practical operation.
The commercial distress and the shrink
age of values is beyond all former pre-
cedent in this country: and yet no exper
fences, past or present, suffice to eDlighten
the public understanding as to the proper
means to be adopted for the removal OF
the causes which have wrought financial
disaster, or to secure the legislation which |
would establish the monetary affairs OF |
the country upon a sound and durable |
basis, In truth, it is exceedingly difficult
to assign all sthe causes, or perhaps even
the principal causes, which. in the midst of
unsurpassed plenty of all the productions Of
agriculture, Of all the elements of national
wealth, all the advantages of largely de-
veloped industrial and commercial pur-
suits, have failed to prevent the universal
monetary distress; sand which, instead OF
producing the prosperity which would rea
sonably be expected under these favorable
conditions, have reduced the country to
such straits that its manufactures are
either suspended or running short, public
works are unfinished or abandoned, pri-
vate enterprises of different kinds have be.
come languid and enfeebled, and thousands
of skilful laborers are out of employment
and reduced to want.
One of the causes which has probably
contributed quite as much as any to pro-
duce the present condition of affairs is the
unwarrantable manner in which the bank
ing business of the country has been con-
Quoted. In order to make the meaning
more plain which is intended to be con-
Veyed by such an assertion, it is gecessary
to consider at some length the nature and
extent Of the advantages which result from
discount banking, and also the disasters
which have more than counterpoised all
the advantages.
Principally the advantages derived from
discount banking consist in the economy
effected by substituting auxiliary
for actual money, The money placed at
the disposal of bakers is entered in their
books to the credit of depositors; the bank
ers retain one portion of it as their cash
reserves, and advance the other and the
large portion on securities. The credit
entries, so long as the banks remain
solvent, give to the depositors the
same commanded money which they would
possess were the whole of the deposits rep
resented by cash in the Golfers of the banks,
and consequently that portion OF the money
deposited with the bankers which is ad-
vanced by them upon securities, is olsen
gagged from circulation, and made appli-
cable to the purchase of additional sup
plies of food, materials, and implements.
The.adyantage derived is subject to con-
siderable variations. 1t is increased OF
diminished with every increase or diminu.
ton 10 the number of those who adopt the
practice of placing their money in the
banks, and also with every increase or dim
mutton in the proportion which banker
may find it expedient to maintain between
the amount Of their advances upon securi
ties and their reserves.
The operations of discount banking hav
a considerable effect in increasing the actiy
ity of the circulation. They impart to
an elasticity which enables any given SUI
to perform many functions in rapid SUI
cession. A banker, for example, make
advances TO those dealing in pork, grair
or other articles which are shipped else
where tor market, the shippers pay thos
advances to the parties of whom they pul
chase, and they in turn return the sam
money to the bank as renewed deposit
Thus the sum withdrawn by the bankC
from his cash reserves to meet the TEN
porary demands of business, may ate
having performed several offices an
passing through several different partie
be returned into the bank vaults befor
the expiration Of month from the date
the first advance, though of course NJ
usually within quite so short period.
Another and the more common and oh
vious advantage Of discount banking
S""I - OOOuohioeS capital. III OID6T WOrQ
Il enables producers to devote to dire
production capital which they would othe
wise be obliged to retain in the form
money to meet their coming payment
A manufacturer cxpends, say, 81 1000 D,
week in wages, and sells his goods at thrc
months credit, Were he to wait for Il
replacement of his advances, until the bill
OF those 60 whom he has sold goods shou
tall due, be would be obliged, on CON
mencing business, to provide for his pa,
ments on account of wages alone, by loci
ing up at least $40, 900 This capital for tn
single purpose, But he can provide f
his weekly payments to his operatives
dlscountiDg from time to time the a
ceptances of the purchasers of his good
and he may be thus enabled to carry {
his business with a cash reserve on accou
OF wages Of probably $4,000 or $500
The effect of discount banking in econ
missing mercantile capital is still mo
striking. Under the credit system Il
purchases of the merchant NAV be effect,
without any immediate money payme,
whatever. He purchases by giving. ar
sella by taking, bills payable on futu
day; aud should he SO arrange his trapsa
tions as to be able to discount the bills
has received just as those which he h
given are falling due. he NAV corrv IN