The log cabin Democrat., 1916-05-16
METHODOFF|NANC
HOW BANKS MAKE" MONEY FOR
 THEIR CUSTOMERS.
Little Story Explains the Operation of National nstitutions-WholeP Proc ess Resolves Itself Into Mat
 ter of Credit.

It would seem that after the bank takes your money. protects it, pays t back on demand or as you order, lends you money, discounts your neighbors note for you, it would have nothing else to offer in your behalf But il has-it 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 all ways come in sheets of four) you won- der what he is doing, and what is be- hind it all. We will show you by simple illustration. Let us suppose you want to borrow $1,000 and offer your note to your banker. He knows you. knows that you will pay, and wants to accommodate you. He looks at his books and says: T cant spare the money. The law says must have fifteen cents out of every dollar I owe my depositors in cash, or where I can get it on demand; and I have just what the law requires. If I give you credit for the note and let you check against it, l increase my debts and make my condition worse, for if I 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 uyhi ha :, box. He finds government bond which he bought year ago when he mad plenty of spare money, for cash, and comes back smiling and says: Very well. in three days you can have your money. l 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 $5 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 satis- fed.
 You see, by this proposition he has turned your notes into bank notes, with himself behind 1t and the gov ernment 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 tho 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. He makes money and you take the money he has made and make some money for yourself. It is 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 in this country only by banks under 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 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.