The Saint Paul globe. (St. Paul, Minn.) 1896-1905, 1901-10-17
STICKNEY TALKS MONEY
continued From First Page.

in connection with an ordinary so-called
borrowing. Suppose 1 borrow in the
usual way 100000 from bank. The
transaction would increase the banks
deposits 100000, not before; but at the
same, instant of the loaning, and, al
though it would increase the banks de-
posits 100000, it would be no evidence
of an increase of wealth in the form of
money or otherwise.
After 1 had borrowed the 100000 the
bank would have no less money and 1
would have no more money. 1 would
nave only credit OF $10G, 900 on the bank
ledger. 1t was not a borrowing of
money but r swapping of credits. / have
traded my note as evidence of my In
debtedness to the bank, in exchange for
book entry as evidence of the banks
Indebtedness TO me. 1t is true l may
transfer the Indebtedness of the bank
by check (Which is miscalled drawing
the money from the bank, but in that
case my check will be deposited in the
same or some other bank, and that $780, =
GOO note would remain part of the So
called deposits of the banks either in tlAc
original or in some other bank, until It
was finally redeemed.
In this case the bank increased it's de-
posits by increasing its loans, and il the
deposits OF all the banks be considered
as whole, it will be found that the de-
posits increase when the loans increase.
The deposits, in the MAN, are produced
by the so-caifed loans
The fact is that in most of the bank
tIdHSdCttCHS tHeF6 Is no borrowing, or
lending, or depositing. They are simply
credit transactions, a swapping of cred
its, which in the matter of bookkeeping
increases both the so-called deposits and
the So called loans in the same amount
and at the same time. Practically all the
so-called deposits are made by swapping
the banks credit for ether credits in
the form of promisSory notes, checks,
drafts, etc There are small streams of
money flowing in and cut. but the ineom-
lngs and outgoings are SO nearly equal
that writer has said, "a banks cash
resembles a column of gold with a slight
ripple on the surface"
In this country the greatest ripple on
the surface of the reserve is produced
by the daily clearances. With a properly
organized system of banking no money
Whatever would be required. The daily
balances at the London clearing house
are settled without the use of a penny
of money. -
Swapping credits is the function of the
consists in serutinizing Individual cred
It's and giving its own credit
for such individual credits as
are acceptable, and thus furnish
of exchange of commerce. To regard the
bank as a mere money lender is to be-
little it's important and useful function
In this connection I want to say that
expresses my exact meaning, and even
boys know what it means. The boys
swap jackknives and swap marbles. The
banks swap credits.
METHODS OF EXERCISING THE
BANKING FUNCTION.
Having stated. as clearly as my ability
permits, the nature of the banking func-
ton, shall now venture to speak of
the methods of exercising it, and of some
OF the difficulties, owing to the restric-
ton OF the laws, of a proper exercise of
the banking function during commercial
crises. 70 present my propositions clear
ly, must repeat that the creation of
commercial credits has relation to pro-
ouet1on and their extinction to consump-
tlen, and there is always lapse of time
AS consumption cannot be un-
naturally accelerated, and as the
medium of exchange once is
SUED cannot be ultimately redeemed
sumption, vast volume of such cur
rency must be always outstanding, and as
production and consumption are continu-
GUS processes the function of the bank is
also continuous.
The bank therefore, which fails to con-
tnuously exercise it's function of swap
ping credits, fails to perform it's part and
IT'S duty, and does incalculable mischief,
because the normal value of products can
ne only maintained by the merchants,
with the assistance of the banks carry
ing them wiTh steady hand until they
are required for consumption.
When the banks, from whatever cause
refuSe to perform their part by refusing
TO swap credits with the merchants, the
merchants are compelled to stop buying
and to vainIy attempt to force their
stocks upon the consumers by lowering
prices. Such attempts must always be
futile, because the consumption which
produces the ultimate redemption of cred
its is necessarily a uniform hand-to-
mouth process. The merchants who do
it early may unload upon less foreseeir1g
merchants, but passing credits from one
merchant to another does not reduce the
volume of credits. 1t only affects the in
d1V1dual merchant, and perhaps his indi-
yidual bank, by transferring the bur-
Gems to other merchants and other banks.
But the futile attempts once commenced
in a large way force values lower and
lower until some of the merchants and
producers are ruined. When some of the
merchants and producters are thus ruined,
some of the laborerS are deprived of en-
ployment. When some of the laborerS
are unemployed their ability to consume
is curtailed, which still further reduces
the demand, which still further reduces
values, ruins still other merchants ano
producers, depriyes more laborers of en-
ployment, which still further reduces con-
sumption and values and ruins still other
merchants and producers and finally
ruins many of the banks themselves.
Probably a majority of bank managers
who have not given the subject special
consideration, believe that the withdrawal
of balances by customers compelS the
banks to restrict their loaning during
commercial crises and that many with
draw money which they keep in safe
deposit vaults.
While it is we'll known fact that q
few withdraw money from the banks in
times of panic for the purpose of holding
1t in their own possession an examina-
ton of the accounts of the national banks,
as compiled by the comptroller of the
currency, is convincing that In the panic
of 1893 such withdrawals were inconsid-
cradle; in fact, less than the hard times
u - IL,
people into the banks. Otherwise, at the
pinch of the panic. there would have
been less money IN the banks than before
the panic commenced But the eomptrol-
ler's statistics show the astonishing fact
that at the pinch of the panic, when the
so-eal1ed deposits had decreased $314, O00,-
coo, and had reached their lowest point
the national banks possessed $26,G00,0 900
more money than in 1892 when business
was brisk and the banks were swapping
credits more freely than ever before.
This would seem to prove that, what
ever else may have been the cause of
the panic, it was not a shortage of money
in the banks, and that it is a mistake to
suppose that the difficulties of the banks
during the panic years were due to
Withdrawals of money for the purpose of
boarding.
The enormous decrease in so-called de-
poSitS was about equal to the decrease of
the so-called loans, and was due to the
refusal of the banks to continue swap
ping credits. The difference between the
decrease of deposits and the decrease of
loans was only $13, 900, 0e8-less than per
cent
THE LAWS ARE RESPONSIBLE.
While I am prepared to repeat and
stand by the statement that the reason
of the enormous contraction of the avail
able medium of exchange, or, in other
words the enormous decrease in So
called deposits and the consequent de-
struction of normal values, followed by
bankruptcy of merchants and dis
tress of the unemployed was the
ing their so-called loans. am NOT