of a nation may proceed with regularity, and its development be continuous and orderly.
Suppose that the money actually deposited in a bank amounts to one hundred thousand dollars. The bank knows from experience that it will not need to keep more than fifty thousand dollars of this to meet current demands, and therefore discounts notes to the extent of fifty thousand dollars. It has received money to the extent of one hundred thousand dollars, promises to pay money to the extent of fifty thousand dollars, and made itself liable to the extent of one hundred and fifty thousand dollars—that is, it is responsible for the payment of checks to an amount fifty per cent in excess of the amount of money which it has received. A definite amount of money is made the basis of liability for an amount one and a half times as great. But a bank discounts not only from its actual deposits, but also from its surplus of accumulated profit, and such of its capital as is not invested in real estate, bank building and fixtures. Suppose that the money actually deposited in a bank amounts to a hundred thousand dollars, that it has a surplus of two hundred thousand dollars, and its capital in excess of the amount invested in bonds, real estate, and banking house is two hundred thousand dollars; its funds available for discount thus amount to five hundred thousand dollars. As the only legal restriction upon the extent of its discounts is the requirement that it maintain a reserve in actual money amounting to twenty-five per cent of its deposits, it is obvious that by keeping on hand a hundred and fifty thousand dollars in actual money, its statement of deposits may show six hundred thousand dollars. Of this a hundred thousand dollars is actual money received as deposits and five hundred thousand dollars the proceeds of discounted notes. And thus it is evident how it is possible for by far the greater portion of the exchanges of the country to be effected by representatives of value based upon the assurance of the production of human effort contained in promissory notes. It must be recognized that this furthering of the exchange of the result of human effort may be of vast benefit to the public as a whole. For example, a Southern planter, with ripening acres of cotton, may not have the means wherewith to pay for the picking, cleaning, packing, and freight to the place of market. The proceeds of a note discounted at a bank will provide him with the necessary means, and he pays the note with the money obtained from the sale of the cotton. Likewise with an elevator owner in Chicago purchasing grain for export; or a coal operator of Pittsburg who desires to send fuel by river to the Southern, or by lake to the Northwestern markets; or a merchant with store, clerks, and knowledge of the wants of his section may give his notes for needed goods which he pays from the
