Evening star., 1896-10-06
A Writer Who Maintains That
There is No Scarcity Of
Money--Substitutes for
Coin That Do Most
of the Work of
M oney.

In a letter to the Chicago 1nter-Ocean,
Mr.. C. Clarence Poole gives some interest
ing figures and statements bearing upon the
claim of silver men that there is not money
enough in the country to meet the de-
mands of business. Mr.. Poole writes:
1t is asserted by the advocates of the
free coinage Of silver at tie ratio Of 16 to /
that gold has increased in value or pur-
chasing power. that this has produced
scarcity Of money, accompanied by fall In
prices and hard times, and that the free
coinage Of silver at the ratio specified will
Increase the supply of currency and. by
making money plenty, remedy the evils
named.
A slight examination of the facts will
show that gold coin is used mainly as
standard or measure of value in buying
and selling; that by far the greater part of
business Of the country is done by substi-
tLtes for gold. and that the quantity of gold
coin actually used and needed for is
relatively so very small as to be insignifi
cant in business transactions.
The value Of gold is necessarily depen-
cent upon the supply of substitutes, just as
much as upon the supply of gold itself, for,
| IL tn, substitute perform all the purposes
| ard functions of gold they stand on the
same footing as far as purchasing value
is concerned. Moreover. If the substitutes
can be readily supplied, deficiency in the
gold supply can be easily made up by
the increase of the substitutes as by an i'll
crease of the supply of gold itself
The substitutes for gold coin which are
| in use in the United States, and which,
they equal gold in purchasing power, are
equal in all respects to it, are as follows:
Standard silver dollars. minor coins, paper
currency and checks and drafts drawn
against bank deposits.
| All of the money issued by the govern
| ment circulates at par, and is worth 100
cents on the dollar as measured by gold.
| Accordingly 1t is the full equivalent of gold
coin in purchasing power, and a full sub
| stitute therefor.
| Silver and Paper as Gold Substitutes.
| 1t is important to note that coin or cur
| rency Is III the business world used only in
small transactions. for paying wages. set
| Ting balances. and the like, and all the
| greater transactions are accomplished with
out the handling of cash. but by the use of
| drafts bills Of exchange, checks and other
commercial paper, or representatives oil
| value based on the value of property, while
| II any trades transfers of property are
| accomplished solely by entries in books OF
account.
The small extent to which currency is
| Used in proportion to the total OF business
| transactions is SHOWN by the fact that the
| currency held by banks is always much less
| than the amount subject to withdrawal by
| checks. Thus, in all the banks Of the
| United States In 1895 the amount on de-
| posit subject to the order of depositors was
| 81, 4,SO, 900, Willie the currency held was
| $tS1, ,UUOOO, or less than one-seventh OF
| the deposits.
According to the report of the controller
| of the United States Treasury for 1880 the
| receipts in the banks of the United States
on two different days were:
| One instance:
| Per cent
Checks and drafts. .92 $40
/
| Another instance:
Checks and drafts. s.....................9 100
| In his report for 1893 the controller
states that currency payments are made
| on an average In only 7-1O per cent. or
| about 1-12 of the total money transactions
| of the country.
Coin Substitutes Based on Property.
! Checks and drafts banks are equal
with gold in purchasing power because
they are used at their face value in busi-
ness transactions. The funds in bank are
invested in bonds, stocks other securi-
ties, which are promises to pay money
based on property. or loaned to those who
possess merchandise or other property
which stands as security for the loan, so
that the deposits subject to withdrawal by
checks and drafts are, in fact, to a very
large extent. based on property and to a
small extent only on currency actually
kept in the bank vaults.
Why Substitutes for Coin Are Used.
The manner in which coin substitutes
based on property are brought into exist
ence may be better understood from the
following example:
Supposing a merchant owns a stock OF
goods worth 5000. He needs $1,000 to NEE,
obligations for newly purchased additions
to his stock. He calls on his banker and
asks for a loan of 900. This he readily
obtains on the security of his stock. giving
the banker note OR promise to pay s1OOl
in a definite time. The banker places the
s1,0OO to the credit of the merchant, who
does not withdraw this deposit in currency
| but issues checks against it, and these
checks are deposited in the same or othel
| banks by those who receive them; those
| deposited in other banks being finally paiC
through en- exchange of checks and cur
| rency being used, If at all, only to pay suck
, differences as may exist in the settlemen
| between banks.
This transaction has the effect Of increas
ing the purchasing power of the commun
ity to the extent of 81 ,OOO for the merchan
by depositing his note for that amour
with the bank is enabled to draw checks
| against it exactly in the same way a.
though he had deposited s1,03O gold instead
r of note. The making of the loan and Civ
f ing of the note security therefor ha
produced exactly the same effect as th
, | coinage of LOCO gold dollars and the put
ting of the same in circulation; the depos
it's of the bank being increased to the sam
{ extent that they would have been by tn
: deposit of 81 600 in gold.
al Every person vino thus uses his propert
r as security for a loan used to carry on hi
business, employs the same as a suhstitut
for currency and lessons the amount of tn
latter needed for use in the community.
r Why the Demand for Coin is Small
Inasmuch as eleven twelfths of busines
| transactions are made through the use o
| checks, or orders by deposisors on thei
a bankers and as the settlements betwee
banks for the checks on one bank depos
: tied in another are effected by exchange o
: checks and the payment of differences o
y balances only in currency, 1t follows tina
q currency is called for by customers Q
O banks in comparatively small quantitie
O only, and 1t becomes necessary in practic
g g for the bank to keep in its vaults in col
3 or other currency only a small proportio
:, of its deposits Assuming this reserve t
:. be (as REQUIRED by law in some cases. one