Part 56 (1/2)
16. Land laws of the United States. (Van Hise, _Conservation of Natural Resources_, pages 279-297.)
17. Legal problems of reclamation. (_Annals_, vol. x.x.xiii, No. 3, pages 180-192.)
18. The work of Gifford Pinchot. (Consult an encyclopedia.)
19. The Congress of Governors, 1908. (Van Hise, _Conservation of Natural Resources_, appendix i.)
20. The North American Conservation Conference. (Van Hise, _Conservation of Natural Resources_, appendix ii.)
21. The National Conservation a.s.sociation. (Van Hise, _Conservation of Natural Resources_, appendix iii.)
FOR CLa.s.sROOM DISCUSSION
22. To what extent should state governments regulate private forests?
(Consult _Annals_, vol. x.x.xiii, No. 3, pages 26-37.)
23. Should all mineral lands be leased rather than sold?
24. Is the adoption of a program of scientific forest culture at this time economically justified?
25. Under our present laws is it possible effectively to coordinate the conservation work of state and Federal governments?
26. Are higher prices an effective check to the excessive use of forest and mineral products?
27. State versus Federal administration of conservation. (Consult the Debaters Handbook Series.)
CHAPTER x.x.xI
CREDIT AND BANKING
379. SOME PRELIMINARY DEFINITIONS.--Money may be defined as anything that pa.s.ses freely from hand to hand as a medium of exchange. Money is of two types: first, coin, including gold, silver, nickel, and copper coins; and second, paper money, including several kinds of certificates and notes. Both types of money, coin and paper, are called ”cash.” Credit refers to a promise to pay money or its equivalent at a future date. A bank is an inst.i.tution which makes it its special business to deal in money and credit. A check is a written order directing a bank to pay a certain sum of money to a designated person. A bank note is a piece of paper money or currency which const.i.tutes the bank's promise to pay in coin and on demand without interest, the sum named on the face of the note. A reserve fund is an amount of money or securities which a bank habitually keeps on hand as a partial guarantee that it will be able to meet its obligations.
380. TYPES OF BANKS.--Of the several types of banks, the savings bank is perhaps the most familiar to young people. A savings bank will receive deposits of one dollar or more, and will pay interest on these amounts. But the savings bank does not pay out money on checks drawn against deposits. Indeed, it may require a formal notice of several days before deposits can be withdrawn.
In many states there are trust companies. In addition to performing the function of a commercial bank, trust companies take care of valuable papers, execute trusts and wills, and sometimes guarantee t.i.tles to land.
The investment bank is usually a private inst.i.tution, conducted chiefly in the interests of certain large industrial organizations.
A fourth type of bank is the commercial bank, with which this chapter is chiefly concerned. The commercial bank derives its name from the fact that it deals largely with business men. If cla.s.sified on the basis of their charters, rather than on the basis of function, commercial banks may be either National, State, or private banks.
381. PRIMARY FUNCTION OF THE COMMERCIAL BANK. [Footnote: Throughout the remainder of this chapter the word ”bank” should be taken as referring to the commercial bank.]--The primary function of a commercial bank is to receive the deposits of persons who have saved sums of money for which they have no immediate use, and to make loans to persons who desire them. Of course, those who have deposited sums with a bank may draw on their accounts at any time, either themselves demanding sums of the bank, or directing the bank, by means of checks, to pay specified sums to others. But experience has taught the bank that if it keeps on hand a reserve fund equal to from five to about thirty-five per cent of the sums for which it is liable to depositors, it will ordinarily be able to meet all the demands for cash which depositors will be likely to make upon it. The bank may then loan out to business men the remainder of the money deposited with it. This not only encourages production, but it allows the bank to secure a reward for its services. This reward is in the form of interest paid by those who borrow of the bank.
382. THE NATURE OF BANK CREDIT.--When an individual actually deposits with a bank $100 in cash, the bank becomes owner of the $100, and in turn writes down on its books the promise to pay to the depositor, as he shall direct, amounts totaling $100. The depositor receives a check book, and may draw part or all of the $100, as he likes.
Now it may happen that an individual may wish to increase his checking account at the bank, but that he has no actual cash with which to make a deposit with the bank. In this case he may give the bank his promissory note, together with stocks, bonds, or other forms of wealth, which the bank holds as security. In return, the bank credits him with a ”deposit.” This means that the bank extends its credit to the individual, by undertaking to honor checks for sums not actually received from the depositor.
The bank has received valuable security from the borrower and hence feels justified in extending him a deposit credit. But, why does a bank feel _safe_ in undertaking to pay out sums of money which it does not actually have in its vaults? The answer is that the bank attempts to keep on hand a reserve fund sufficient to meet all demands for cash which may be made upon it. If the reserve fund is relatively large, the bank will ordinarily loan its credit freely. If the cash reserve is relatively low, the conservative bank may refuse further loans, on the grounds that its cash reserve is too low to justify the acceptance of additional obligations. The only safe alternative to this is for the bank in some way to increase its reserve fund, and then proceed to extend the amount of credit justified by this increased reserve.