deposits in actual money which it retains to meet current demands, coins, or circulating notes, to the amount of two hundred dollars, B may have employed C, a contractor, to make some repairs at his place of business, and he gives C a check on the bank for ninety dollars. C also has an account at the bank and deposits the check to his credit. The bank on its books charges B with ninety dollars and credits C with ninety dollars. B's debt to C has been paid without the use of money at all, the bank, in this instance, acting as a register of the exchange of human effort. B may have purchased goods in New York from X Y & Co. to the value of three hundred dollars. He delivers a check to his bank for that amount, and the bank delivers to him a draft on its correspondent bank in New York for three hundred dollars. B mails the draft to X Y & Co., who have an account at the bank on which it is drawn, and deposit it in that bank to their credit. This bank charges the original bank on its books with three hundred dollars, and credits X Y & Co. on its books with three hundred dollars. No money has been used in the entire transaction. Representatives of value based upon the note of A to B have caused the transfer of credits in the books of the original bank and in the books of the New York bank.
These instances indicate the manner in which, by the aid of the banking system, the exchange of the results of human effort is promoted to an extent far transcending the possibilities of exchange effected only by the use of coins or by the direct representatives of coins. By means of checks and drafts based on book credits in banks that are based on the assurance of the result of human effort as given by promissory notes, a very considerable portion of the commerce of civilization is forwarded, the proportion of exchanges effected by coins or the direct representatives of coins being in constantly decreasing ratio to the total value of exchanges. But, as when there is a scarcity of coin among the members of a race who have progressed to the use of coin, the exchange of effort between them is hindered and reverts to barter; as, when there becomes a scarcity of circulating notes among a nation accustomed to their use, commerce and manufacturing are restricted because, in the absence of other expedients, exchanges are necessarily conducted by coin, so in our banking development, when promissory notes and other securities are regarded with distrust by the banks upon which is devolving the most of the burden of directly or indirectly supplying the money needed in a community, there is a restriction of the exchange of human effort. Manufacture and commerce are retarded, and are forced to the exclusive use of coins or their direct representatives.
A most important point of the banking problem, therefore, is the regulation of discounts in such a manner that the commerce