honest and competent to receive and record deposits and to make payments with accuracy. That the strong and well-guarded vaults of modern banks meet the first of these points is evidenced by the decreasing list of bank robberies that are accomplished by physical force. The examination of bank employees' character, that has become the more searching and rigid as the operations of guarantee companies have extended, is causing defalcations through the direct stealing of funds to become constantly fewer.
As banks have become more numerous, the use of checks has increased. Between office and store, factory and warehouse, bank and bank, city and city, millions of these pieces of paper are continually in transit, furthering the exchange of human effort. The interlinking of banks as correspondents and the growth of clearing houses have formed a mechanism whereby their payment is effected with celerity.
But the actual deposits of a bank are increased by the proceeds of loans which it makes and which are frequently placed to the credit of the borrower the same as though money had actually been deposited by him. For example: A bank discounts a note from A to B at sixty days for one thousand dollars. The proceeds, amounting to nine hundred and ninety dollars, may not be instantly needed by B; the amount is placed to his credit for him to check against—that is, nine hundred and ninety dollars is placed to his credit on the books of the bank. As his checks come in he is charged with their amount on the books of the bank. In this way he obtains from the bank the use of nine hundred and ninety dollars; or, to speak more accurately, the bank is the guarantor of representatives of value issued by him to the extent of nine hundred and ninety dollars. He has deposited no money. What he has deposited has been a promissory note—that is, a promise to produce the result of human effort of which he can dispose for at least the value of the note. As a bank's profits are largely made by discounting notes, a very considerable portion of the checks issued against every bank, therefore, are not drawn against money deposited in it, but against credits in its books, which are based upon the assurance of the forthcoming of the result of human effort. And therefore a vast proportion of all the checks that flit between store and office, city and city, are based, not upon cash directly, but upon the guarantee of a bank that it will accept checks to the value of the result of human effort, the assurance of the production of which has been discounted or purchased by it and held as the basis for its guarantee.
In the case specified, the exhaustion of his credit by B might be somewhat as follows: At the end of the week, to pay his employees, he may draw two hundred dollars from the bank. In this instance the bank advances to him out of that portion of its
