Evening star. [volume] (Washington, D.C.) 1854-1972, 1913-01-25
ARTICLE II.

In addition to the chief fault, another
serious defect is that our banking and
currency system serves commerce un-
economically. Low-cost banking service
is advanta geous to commerce in a way
similar to that of low-cost transporta-
ton Our banking system entails high
cost service
Uncertainty as to the sufficiency Of re-
serves under our present system of par
celization among many thousand banks
and doubt as to the possibility of secur-
ing assistance if need should arise force
banks to be largely self-dependent and
accordingly to carry proportionately 1arg-
err reserves. The larger the proportion of
money reserve carried the smaller the
proportion loaned Of the funds depos-
the volume of commerce, but also IN
higher lending rates to yield profit sur
ficient to induce banks to operate. For IN
stance, If of 500 deposited $50 Is loaned
at 6 per cent. the yield Is IS per a mn !.
The same income is derived If $40 Is
loaned at per cent. That system which,
with safety permits investment In loans
of a greater proportion Of funds depos-
tied serves commerce more economically.
Inequality Of Rates.
In different sections there is also great
inequality of rates. Loans now, for the
most part, find only such market as local
funds provide Surplus funds OF one Sec
ton are not available for use in other
sections for lack of loan investments 30
standardized that they have broad
market Other countries attain TINS
through acceptance or Endorsement OF
borrowers obligations by banks or re-
sponsible discount houses. By this ran,
ure to utilize available 1unos tne eus'
of banking service Is enhanced ana tHt
DEVELOPMENT of the newer sections mucn
retarded both by lack Of accommodation
and by high rates.
In addition to these factors OF uncer'
tainty. which obviously tend to increase
| the cost of banking service, there Is an
| other which is perhaps less obvious.
| Money is a medium in which the pro
Queer of any form of wealth may store
it's value until he desires to exchanse
| wealth. Its exchange Is easier IL II:
| value is stored in the form OF dollar
The use of money superseded Darter pc
cause Of the greater convenience ane
economy in effecting exchanges For tne
same reason the use Of credit; or promise.
| to-pay money has superseded the use o.
money in more than 80 per cent of oul
exchanges
| a dollar of basic money. gold. repre-
sents the expenditure or approAlma.els
| ton as a quantity Of any other com
| modify which exchanges for dollar
| The direct use of gold dollar In ex'
| changes is in sense barter. II eN'
| changes were effected only in this way
| exchanging gold for other goods, thu
supply Of gold would fix the limit of tht
| volume of exchanges. To make posslpis
! an increas ed volume of exchanges. larger
commerce, it would be necessary elthel
| to incur the cost the expenditure OF
| labor required to produce a proportionatt
increase in the stock of gold or to suffer
the losses incident to proportlonatelS
increased purchasing power OF gold, thai
| is, proportionate reduction in prices
Burden Upon Commerce.
The cost of producing gold held as
| money for the purpose Of effecting ex-
| changes is burden upon commerce cor
responding to the cost Of building a rail-
| road for the purpose of securing trans.
portation. Although gold is available for
| other useful purposes. while held as mon
| ey. it is wealth kept idle except for the
| sole purpose of effecting exchanges. The
cost of holding this wealth, unproductive
| otherwise, Is the measure Of the burden
upon commerce. To the extent that more
economical means may be employed with
equal safety for effecting exchanges. to
| that extent would commerce be benefited,
just as through lower transportation rates
attained by increasing the efficiency Of a
railroad with double tracks. more power
| full locomotives and larger cars.
| Gold used for bank reserves forms the
basis for credit instruments. for promises
| to-pay money, with which so per cent of
our exchanges are now effected. One
dollar thus used in bank reserves per-
| forms the work for which certainly more
than $1O perhaps even many as $50.
are required when money is used directly
| in exchanges. The tremendous economy
to commerce is thus plainly seen in ef-
| fect!ng exchanges by the use of credit
| instruments, of promise-to-pay money.
| instead of using money itself. And it must