The Saint Paul globe. (St. Paul, Minn.) 1896-1905, 1901-10-17
President of Chicago Great Western
Railroad Addresses Convention --
OF Bankers.
Able and Interesting Address or
..The Medium of Exchange and
the Banking Function

money in the bank A credit on a bank
ledger is not money-it is simply an ,evi-
dence of the banks Indebtedness, which
may or may not be redeemed, like any
other Indebtedness. Whatever money
bank may possess (Which is always less
than its indebtedness) be-ongs to the
bank
The which can be said about money as
medium of exchange is that It may be
used as such, but as matter OF fact,
it is seldom, practically never, used as a
medium of exchange except In petty
| transactions. -z.<st4 l. Ar- i
Stating the fact affirmatively, the me-
dunn of exchange in some petty transac-
! tions is money, and in many petty, and
| in all the larger TRANSACTIONS 1t is eredlt.
| Legitimate credits for use as medium
| of exchange are produced b.. kIying for
| the purpose of selling, and they are ex-
| tinguished by buying Cor the purpose OF
consumption. In short, their creation has
! reference to production, and their eXtlnc-
! ton to consumption. Such credits expand
| as production and commerce expand, and
| contract as production and commerce
| contract. The merchant who C. Gates a
! credit deposits it in his bank and uses it
| first, then it is transferred by check time
| after time, effeeting exchange after ex-
change, until it is finally redeemed. The
made with cash. Therefore While it is
| true that all the larger transactions OF
| commerce are effected with credit as the
! medium of exchange, it does not follow
|
| purchases. The few merchants. who dc
/ not go in debt use credits which have
been created by others.
THE BANKING FUNCTION.
The modern commercial bank is a most
useful institution, but it has no inde-
| pendent function. 1t is a co-worker with
| the merchant.
The merchants function is primary-the
! bank function is secondary. Trading is
| the foundation, ana without the trader
| there could be no banking function. The
merchant takes products into his posses
sion against an issue of his individual
credit-the bank fructifies the merchants
credit, and makes it available as a me-
dunn of exchange.
The bank is also the clearing house Of
traders. 1t clears the trades of it's GUS
toners by offsetting indebtedness. The
ultimate redemption of mercantile indebt
edneSS is by offSet-not in that fgment
of ignorance the So-called 'tI-oney of ul-
innate redemption" There is no such
thing as money of ultimate redemption -
Money is not ultimate. 1t is q mediate.
Money is the medium not the ultimate
Of exchange.
The vast volume of the worlds indebt-
edness is being continually augmented by
creation of new credits and reduces by
offset, so that the volume remains. The
volume must always. remain as long as
commerce exists. Single merchants and
single banks may liquidate s.Hnder~ normal
conditions, but all the merchants and all
the banks can never Hqdidate. Indebted
ness is immortal. 1t must always exist.
There are many misconceptions of the
banking function, growing out of the
technical but unnatural meaning which,
in banking parlance, is given to the words
deposit and borrow When the pub
lie is told that the bank deposits have in
creased $1,500,0G0G00 since the panic, it
is regarded as evidence of an enormous
increase of money. The increase of
bank deposits simply means that condi-
tions of trade are such that merchants
have increased their indebtedness, which
Indebtedness has been exchanged for
bank credits, and by this means the in
debtedness of the banks has been increas-
ed 1t is an increase Of Indebtedness
which is available as a medium of ex-
change, instead of an increase of money.
There has been but a comparatively slight
increase of money. During the period in
which the so-called deposits of the ma
tional banks have increased 81 1,5CG OO0 900.
the money in the banks has increassd d
only 07.030,00O.
! Regarding the banks as money institui-
tons; in connection with the use of the
words deposit and borrowing" ccn-
fuses; the mind as to the real nature of
| the so-called deposits ard borrowings
| 1t IS the general understanding that the
| sequence OF the banking business is first
| a deposit, then loan, and therefore the
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