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ment funds and act as fiscal agents of the government, and they hold the ultimate banking reserves of their respective countries.

The United States Bank (1791-1811) and the Second Bank of the United States (1816-1811) were institutions of this kind. In each case Congress refused to recharter the bank at the expiration of its original twenty-year charter. In each case, also, this occurred when the country was temporarily under the dominance of a strong democratic sentiment opposed to political or financial centralization in any form. Jealousy on the part of state banks was, however, the immediate cause of the demise of the first United States bank, while the second succumbed to the still more potent hostility of Andrew Jackson. There are many who think that the abandonment of the independent treasury system and the reestablishment of a great central reserve bank would be the best solution of our currency difficulties. Such a bank might very properly be limited to the field of issuing notes, and receiving the deposits of and making loans to the government and other banks. The Present Position of State and Private Banks. The figures in Table IV give only a partial idea of the present position of bank

TABLE IV

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NUMBER OF BANKS AND AMOUNT OF DEPOSITS IN SPECIFIED KINDS OF BANKS: 19071

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From Report of Comptroller of the Currency, Finance Report, 1907, p. 418.

ing in the United States, for while they are complete as to national banks, there were, in 1907, over 4000 other banks which failed to make reports to the comptroller of the currency.

"State banks," in the narrow sense, include only corporations chartered by the individual states to conduct a general commercial banking business. In a broader sense savings banks and trust companies incorporated under state law may be said to be state banks.

Savings banks do not usually do a commercial banking business; that is, they are not engaged in the sale of bank credit in a form that can be used in making payments. Their deposit accounts are not usually transferable by means of checks. They receive deposits of small savings and invest them in long time securities, such as real estate mortgages and bonds of various sorts. They perform an important social service by stimulating saving and by increasing the financial power of small investors through concentrating and combining their resources. Savings banks are organized either as corporations or as mutual societies managed by a board of trustees acting for the depositors. The latter type is especially common in the eastern states. The advantages of savings banks are less available in the rural districts than in the cities, a fact which is perhaps the strongest argument for the establishment of postal savings banks by the federal government.

Trust companies were at first organized to take charge of trust funds and to act as executors and administrators of estates. They have, however, developed the functions of both savings banks and commercial banks, and have even entered such specialized banking fields as foreign exchange and the underwriting of corporation securities. They have thus the character of free lances in the banking field. Their banking functions have developed so rapidly that in many states they have been put under no such rigid control as is exercised over state and savings banks.

Private banks are of two very distinct types. Some are small unincorporated banks in country towns. Others are great concerns in the financial centers which deal in investment securities, buy and sell foreign exchange, finance great corporate undertakings, and, in some cases, act as brokers in the stock market.

It is impossible, in fact, to draw a definite line between “banking” and other financial undertakings. Building and loan associations, private money lenders, note brokers, life insurance companies, etc., frequently perform functions which are very much like some kinds of “banking." But banking as the institution which converts personal credit into bank credit in the form of deposit accounts and bank notes is a clearly defined thing, and has a distinct economic significance of its own.

QUESTIONS

1. Do you make a loan to the government when you receive greenbacks as money?

2. Compare the history of the assignats of the French revolution with the history of the bills of credit issued by the Continental Congress.

3. Explain the various items in the published "statement" of a national bank.

4. Because a national bank can buy interest-bearing government bonds and use them as security for its own issues of paper money, advocates of government paper money issues have alleged that it gets "double interest on its money." Is this true?

5. How should one compare the profitableness of issuing notes with the profitableness of extending deposit credit?

6. What restrictions does your state impose on state banking corporations? 7. Why would wheat not make a satisfactory money commodity? iron? platinum? diamonds?

8. Would it be possible to maintain a seigniorage of 10 per cent on United States gold coinage?

9. Report on the following questions not answered in this chapter: (1) What is the "limit of tolerance"? (2) On whom does the loss due to the wear of gold coin fall? (3) To what extent are different kinds of United States money legal tender?

10. If the United States had adopted the free and unlimited coinage of silver in 1896, how would prices have been affected?

II. Is the actual standard of value pure gold or gold of standard fineness? 12. What elements of truth are there in the statement that "coins get their value from the government stamp"?

13. Would it be possible to have a standard of value that could not be used as a medium of exchange?

REFERENCES

BULLOCK, C. J. Essays in the Monetary History of the United States.
CLEVELAND, F. A.

Comptroller of the

CONANT, C. A.

Funds and Their Uses.

Currency, Annual Report.

History of Modern Banks of Issue.

DEWEY, D. R. Financial History of the United States. (See index.)

Director of the Mint, Annual Report.

DUNBAR. Chapters on the Theory and History of Banking.

HEPBURN, A. B. The Contest for Sound Money.

Indianapolis Monetary Commission, 1898 Report.

JEVONS, W. S.

JOHNSON, J. F.

Kinley, David.

Money and the Mechanism of Exchange.

Money and Currency.

The Independent Treasury System; also, Money. KNOX, J. J. History of Banking in the United States, and United States Notes. LAUGHLIN, J. L. History of Bimetallism in the United States, and The Principles of Money.

MITCHELL, W. C. History of the Greenbacks, and Gold, Prices, and Wages under the Greenback Standard. (University of California Publications, Economics, Vol. I.)

NOYES, A. D.

PRATT, S. S.
SCOTT, W. A.

Thirty Years of American Finance.
The Work of Wall Street.

Money and Banking.

SUMNER, W. G. History of Banking in the United States. Treasurer of the United States, Annual Report. (This, together with abbreviated forms of the reports of the Director of the Mint and the Comptroller of the Currency, are printed as appendices to the Report of the Secretary of the Treasury in the bound edition of the annual Finance Report.)

WALKER, F. A.

WATSON, D. K.

WHITE, HORACE.

Money, and Money in its Relation to Trade and Industry.
History of American Coinage.

Money and Banking.

CHAPTER XVI

OTHER PROBLEMS IN MONEY AND BANKING

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Crises. Crises are frequently recurring phenomena of current economic life. They are of all degrees of severity, but are generally characterized by a scarcity of bank credit, a sudden drop in prices, industrial depression, lack of employment for wage earners, and kindred symptoms.

Crises are frequently attributed to "over production," or, when that expression is criticised (because human wants are never fully satisfied) to "under consumption." The two expressions are different ways of describing the same thing, and both are misleading because they put the emphasis in the wrong place. Production and consumption have to do with quantities of things and their fitness to satisfy human wants. Crises spring from mishaps in the valuation of things; they relate to what might be called the dollars and cents aspect of economic life. It is difficult, even impossible, for observers to analyze all the factors entering into a particular crisis, and it is even more difficult to formulate a theory of crises that will be of general applicability. There are some important things about crises, however, that are relatively well known, and these will form the basis of our discussion.

It is a significant fact that crises generally occur only as sharp interruptions of periods of business prosperity, when credit is abundant, prices relatively high, and employment plentiful. Whatever may be the cause of a period of exceptional business prosperity, it is apt to contain within itself the seeds of its own destruction. The point will appear clearly if we put together two conclusions that were reached in the preceding chapter: first, that the supply of loanable funds in the form of bank credit is a function of two variables, the supply of personal credit and the supply of money

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