Mexico weekly ledger., 1895-04-11
Money. banking ana Currency.

Niit Quantity III ltFti AAtAitt AbNlb ~
Il book enjoying n large circulation iii
the States of the middle West en-
bodying the supposititious lectures OF
an imaginary young %tinancicr named
Coin, whose real name is Fiat. This
young iinancier lays down the rule
that there should be n real money dol
lar for every credit dollar or every
representative dollar existing in the
country. There are about &c, 000, 900
of people in the United States, and
reckoning the circulating currency at
S25per capita, and the coin, government
paper, and national bank notes as
about one-tenth of the instrumental
ties or tools of exchange in the coun-
try, Coin would have gold and silver
money increased from about 5 $780,
900, 900 to about SIG, 500, oO0, 900.
Let us assume for the sake of illus
tration that the storekeeper's $4,000
in orders came finally into the pos
session of his debtors; that every man
who held one of them owed him a sum
of money equal to the face value of
the order. The result would be that,
through the agency of the Spectator,
the storekeeper would obtain pay
ment of the debts due him. The
farmers, by using the orders, would
pay their debts in grain, in horses, i'll
old accounts, in interest money, i'll
products of various kinds. Barter
would be simply facilitated by the use
of this paper. The speculator himself
might not employ any coin in repay
ing the storekeeper. AS we have
seen, he might send his check to the
storekeeper to pay off the orders he
had obtained from him, and it might
easily be that the bank on which this
check was drawn would hold a note
owing by the storekeeper, who had in
this way paid for goods which he had
purchased. The check would then be
used by the storekeeper to pay off the
note. Or the check on the bank might
be presented to it through another
bank, on which, in turn, the first bank
might hold a check. Between these
two banks there would be a settlement
of the difference between the two
checks in money. For example: II
the check drawn by the Spectator to
the order of the storekeeper was for
so, 5O0-the S1O,0 600 of orders and $500
half of the profit of the transaction
it might be sent to a second bank fol
deposit, or in payment of the store
keepers note for that amount or forG
smaller amount. If the amount of the
note were less than the check, the
bank would simply give the store
la dollar of money would pass unles:
the storekeeper desired a settlement
and then he would receive the balance
due him in coin. or in another check
or in bills. The. check on the frs
bank would not necessarily be paid il
money when it was presented by thu
second bank; the first bank might, anC
if the two banks were located in a city
it probably would, hold a check agains
the second bank. | am now speaking
of single transactions for the sake O
simplicity. The truth is that to fairly
represent the transactions between
two banks situated in any considerable
city, this single illustration would hav,
to be multiplied by tens, or hundreds
or thousands, according to the size o
the city and the volume of its trans
actions. The demand on the first banl
would be for $4,000. If the demand
on the second bank held by the frs
bank was equal to that, there woulC
be simply an offset, and the accounts
between the two would be settlel
without the passing of a single dollar
In this event we should have thii
history of the transactions which be
gan with the loan of orders by thu
storekeeper to the s~peculatOr: The
/ ~speculator having no money, borrow
ed orders drawn by the storekeepel
on himself. These orders were prom
ises to pay. With these orders the
SPECTATOR purchased products of the
neighboring farmers of the aggregate
value OF $40 1000. With the same or.
ders one farmer purchased a horse
another paid a debt; a third paid in
terest on his mortgage. Other farm,
ers paid rent, repaired their houses
built barns, bought cattle; and finally
all the orders coming into the pos
session of debtors of the storekeeper
they were employed to cancel Their
debts, and the orders we're destroyed.
With $4,000 worth of the storekeep-
er's orders transactions involving
hundreds of thousands of dollars would
thus be carried on, and all without the
use of a single piece of real money, or
even a single bank note.
On the other side of the transaction
we have this state of affairs: The
Spectator sells the products which he
has bought of the farmers. In pay
ment he receives checks, which he de-
posts in the bank. Let us call it the
First National Bank. These checks
are orders IN other banks. The spec
ulator draws his own check, which is
an order on the First National Bank,
and sends it to the storekeeper in
payment of the original orders. When
the check is received the storekeeper
is really paid the debts owing him by
the farmers. When the storekeeper
receives the check he deposits it in
his local bank, and this bank sends it
to its corresponding bank in the city
in which the First National Bank is
located. Then the First National pays
to this corresponding bank, the Sec
ond, the difference between whatever
check is held by it which is an order
on the Second, and that which the
Second holds against it, which is the
s~peculator's check to the storekeeper.
This is the first use of money or bank
notes in all these many transactions.
Not only has nothing but paper been
.1-~1 - r