The midland journal. (Rising Sun, Md.) 1885-1947, 1901-08-23
Credit rloney and Interest.


published at Topeka, Kas.,
under the title of The WeaO abolition.
The new recruit is chiefly devoted to
the money question, by far the
most monentous question, not only of
the hour but it stands at the fore front of
all economic problems. The Ne70 A60-
ktion quotes portion of all article which
appeared i'll the MIDLAND JOURNAL some
weeks back, on the credit system pursued
in our modern banking.
"B has $1,000 to loan. He loans it for a
month at S per cent At the end OF the
month it CONES back and he loans it for
another month x and so on
through the year. Now it is manifestly
incorrect to say that has drawn years
interest at S per cent on $4,000. He has
had 10 loan the $1,000 twelve different
times in order to keep it out year, and
has only drawn years interest on
$1,000"
That is the way an individual loans his
own money but bank is totally differ
ent loaner. The bank doesn't loan its
own money to any considerable extent,
but its depositors' money, or TO speak
more correctly the banks credit, and
holds its depositors' money to cash checks
against its own credit, or 'hocus pocus"
money.
Let us demonstrate how this trick of
credit, or hocus pocus money loaning, is
done. We will say A deposits $1,000 in
bank. B is standing at his elbow and
borrows-how much of that $1,000? Just
as much as the law permits, which is
three-fourths of it, or $3.50. Does the
bank pay over the counter that $3.50 to B
Not if the bank knows its business, and
the bank surely does Before the loan is
made the bank ascertains whether in
tends to do business with it. IF not B is
not likely to get the accommodation, F."
but is referred to gentleman closely
connected with the bank whose Office is
next door, who will probably accommo,
date him. This private broker will loan
B the money at IS to 20 per cent Of
a "shaye."
But if agrees &c do business with the
bland accommodating cashier, as gen,
eral thing, he leaves the loan of $3.50 as a
deposit with the bank, and the bank gives
him credit on its ledger for the amount
and takes his 'note, with good security
payable when due-in 90 or 90 days. The
interest is deducted by the banker and E
is credited on the banks ledger, not with
$3.50, but less interest at per cent say for
90 days, making BIS credit $73S.75, while
the bank holds his note for the full
amount of $3.50. The bank now has in,
creased its deposits by ioaning B $3.50 Of
AS money and the institutions deposits
have grown TO $3.50.
This process is continued. c applies
for loan and is accommodated on the
same terms with $568, less interest, ont Of
BIS imaginary deposit, and so on till D, f,
F, G, II, I, J, X and L have been accom-.
nlodated, and the bank has loaned $1,000,
all out of the tangible deposit of AS $1,000
No money has been loaned, only bank
credit, and the borrowers have deposited
their notes payable in 80, 90 or 90 days as
the case may be. Here we have the spec
tacle OF eleven borrowers being accom-
modated" to the aggregate amount OF
$4,000 out of AS deposit of 5000 Of CASH.
No other cash has been deposited.
However, in the meantime these bor-
rowers have been checking on the bank
against their credit or its books, and if
there was only this one series of transac-
tons the bank could not stand it, but
when bank gets a-going its customers
are placing money on deposit with it
every day, and while business is normal
these deposits provide plenty of money to
meet checks, and the bank, watching its
reserve as closely as mariner watches
his compass, continues to loan credit as
long as rs per cent of its deposits are
cash. That is margin enough to risk and
have sufficient money to satisfy checks.
1t must be remembered that the most
of the money paid out on checks is dis.
bursed i'll the neighborhood and finds its
way back into the bank again in short
time, often in few hours.
The notes given by borrowers when the
bank has been under way few months
are steadily falling due, and the bank can
demand payment in cash or repeat the
loaning process of more credit
1t is very clear that there is no similar
ity between the supposed case of AS aud
the banks process of making loans. All
the money in circulation is steadily pass
ing through the banks and is used to
cash checks-every dollar of (which
come in against their credit or "hocus
pocus" loans. They loan credit against
and cash checks out of, the public's
money.
There we're $SS, 600, 900, 900 passed over
the counters OF the 81 clearing houses of
the country last year, and that was prob
ably not half the credit business done
The bulk of these clearing house transac-
tons represent credit in the form of
checks and of course draw interest.
While it is impossible to ascertain the
exact amouHt of interest drawn from the
hands of productive industry by the credit
methods pursued by the banLo. it is GER
tain they loan all that the sixteen OF sey-
euteen hundred millions of tangible
money in circulation will cash, every day
in the year, for Sundays and holidays
count in interest drawing, although the
banks are closed OIL those DAYS.
The NeW A6oliti0n says 1--WE are
beginning to think that the government
should furnish money to those who could