Iron County news. [volume] (Hurley, Wis.) 1913-1950, 1916-05-20
METHODOF finance
HOW BANKS MAKE" MONEY FOR
THEIR CUSTOMERS.
Little Story Explains the Operation of
National nstitutions-Whole Proc.
ess Resolves Itself Into a Mat
ter of Credit.

1t would seem that after the bank
takes your money, protects it, pays it
back on demand or as you order, lends
you money. discounts your neighbours
note for you, it would have nothing
else to offer in your behalf. But it
hast makes" money for you, and
incidentally makes money for itself.
according to writer in the Brooklyn
Eagle.
When YOU see the president or the
cashier of bank signing his name to
row of four crisp new bills they al
ways come in sheets of four YOU won
der what he is doing. and what is be-
hind il all We will show YOU by
a simple illustration. Let us suppose
you want to borrow ST 600 and offer
your note to your banker He knows
you, knows that YOU will pay. and
wants TO accommodate you lie looks
at his books and says. Il cant spare
the money. The law says must have
fifteen cents out OF every dollar | owe
my depositors in cash, or where | can
get 1t on demand; and have just
what the law requires. If give you
credit for the note and let you check
against 1t, | increase my debts and
make my condition worse, for il l do
not pay you in cash must stand ready
to do So"
But being resOurceful banker and
knowing how, he asks you to wait a
minute while he goes to his strong
box He finds a government bond
which he bought a year ago when he
had plenty of spare money for cash
and comes back smiling and says.
Very well, in three days you can have
your money | will turn this bond into
bank notes for you" So he sends
the bond to Washington. and in re-
turn the government sends him 200
crisp new S. bills. to be signed by
two officers of the bank, cut and hand
ed out to you.
The government keeps the bond as
security that he will redeem the notes
in lawful money ON demand that is.
pay greenbacks or gold for them If de-
manded (but this is seldom done).
pays him interest ON the bond and you
pay him interest on your note for the
use of his notes, and both are salts
fled
Gou see, by this proposition he has
turned your notes into bank notes,
with himself behind it and the gov
eminent behind him. Your promise
wouldn't go very far from home; these
promises will. Everybody knows them.
They are money" and circulate
as such.
Now what has the banker done by
this process? He has furnished the
community as well as you with circu-
lating medium, handy TO carry. cheap
and satisfactory to all. He has taken
your credit and turned it into bank
credit. lie makes money and you
take the money he has made and make
some money for yourself Ii is a very
simple proposition, understood by few.
but practiced by many If you don't
fully understand it, ask your banker
to tell you more about it. This fea-
ture of banking. however. is performed
III tuIh country olly ny DdHhb uuueT
control of the federal government,
namely. the national banks and fed
eral reserve banks but is a common
banking practice the world over, diff
fering in form but not In substance,
it being a universal function of the
bank to turn credit which is unknown
into that which is known and Will
therefore be freely taken. and bank
note credit is the most common and
useful form