Roland P. Falkner

“ But if a bank can employ all its capital, it is obvious that it cannot employ all deposits in making loans, because occasions are always occurring for removing deposits, as well as making them. Business men, for example, day by day, deposit with their bankers the checks or sums of money which they receive in the course of their business; and, on the other hand, day by day, draw out such sums as they require for the payment of purchases of goods, wages, rent, and other expenditure. A bank, therefore, while continually receiving deposits, is continually repaying deposits ”

“ The difference between ordinary revenue and expenditure may be caused by a national emergency, such as war, to provide for which the ordinary sources of income, however stretched, are wholly inadequate. Or, again, the difference may be caused by the investment in great public works, which either in their effect on the general tax-producing capacity of the people, or by revenues appropriate to themselves, are expected to pay for themselves in the long run. In the cases named a resort to funded debt is the only way open by which to meet such expenditures. ”

“ As the benefit derived by the individual is intangible, there can be no question of an exact equivalence between the payment and the service rendered. The only rule which can be fixed is that they should not be so oppressive as to interfere with the orderly conduct of public affairs. Thus marriage fees, either to the State or Church, should not he so high as to promote unions not legally sanctioned. Court fees should not deprive the poorer classes of the protection of the law. Similar to fees in their nature are the taxes called special assessments in American finance. ”

“ Since the value of the money in use in any society is insignificant as compared with its total wealth valued in terms of money, it has been argued that the function of money as a measure of value is far more important than its function as a medium of exchange. ”

“ It is through the expenditure of public money that the State works in all of its activities, and it is the first duty of the science of finance to determine their nature and scope. Finance accepts public expenditures as a fact. ”

“ Modern banks are banks of ‘deposit and discount,’ for though all loans made by banks are not in the form of discounts, the word is used in this connection to embrace all its loans. The advantage to society from banking operations consists in centralizing credits. The banker collects the money and wealth which would otherwise lie idle, and brings it into use. Through his agency, wealth which would lie idle and unproductive becomes useful and productive. ”

“ The service was valuable because it substituted the notes of the bank for the extremely varied and uncertain metallic circulation of the period, consisting of the coins of many nations, often worn by use, and clipped by those who derived profit from mutilating the coinage. The bank received them at their bullion value, and thus fixing their real value once and for all, did away with the numberless vexations which arose from the use of such a currency. If we except the United States Treasury, which cannot strictly be called a bank, such banks of deposit only have ceased to exist. ”

“ When business is in its ordinary condition, a bank can, after some experience, approximate pretty nearly to the amount of the greatest demand for a return of deposits throughout the year, and provide accordingly. But sometimes the credit of a bank becomes doubted, either from causes peculiar to itself, or on occasions of a panic or general distrust, when all who own money wish to have it in their own possession. ”

“ As the Bank of England is the channel through which, directly or indirectly, payments are made and moneys received, by other banks, it is more convenient for them to have their reserve lying as a deposit in it than lying as gold within their own vaults. ”

“ Whatever increases the volume of exchanges increases the demand for money; whatever diminishes the volume diminishes the demand. Division of labor and the evolution of a money economy are the most important factors in this increase of the money demand. Without a commensurate increase of supply, prices under such conditions must fall. A diminution in the world's demand for money is not likely, but a diminution in the local demand, effecting a temporary rise of prices before the correcting influence of international trade is felt, may and does occur. ”

“ It cannot be said that there is anything like a system in the actual distribution of revenue sources between the two forms of government. It must, however, be obvious that the orderly development of each requires that well-defined sources of income be assigned in such a way as to satisfy the more rapidly increasing necessities of the local governments.
A revenue system should therefore supply current needs, should increase in productiveness as those needs increase, and should moreover be regular in its returns and capable of meeting the fluctuations of financial necessities. ”

“ Banks of deposit, as has been mentioned, make loans from their capital and deposits. If from capital, the banker has no greater profit by the transaction than if he had lent out his money in any other way, equally safe, and involving the same amount of trouble. If from deposits, the interest he receives, so far as it exceeds the interest, if any, paid to the depositors, and a ratable proportion of the expense of carrying; on the business of the bank, is pure gain to him. ”

“ The medium of exchange and measure of value. Whatever fills these functions, however crudely, is money. Of all the substances which have been used as money, gold and silver take the first place, and the discussion of money usually has these in view. It is well to remember, however, that some of the humbler functions of money are to-day performed by nickel and copper, and that in times past not only other metals, tin, lead, iron, and platinum, have been used as money, but also, especially among primitive peoples, a wide variety of other objects. ”

“ In practice, whenever there are signs of a foreign drain, and the reserve of the Bank is diminishing, the Bank counteracts the tendency to a drain by raising the rate of discount and restricting its loans; the purchasing power of the public is thereby limited, and prices kept down; and, at the same time, gold is attracted to England for investment. The circulation is in reality not interfered with. It was also intended by the act of 1844 to add to the security of bank-notes by insuring a supply of gold to meet the payment of them at all times. ”

“ In the case of freely reproducible goods, while market value may at a given moment vary from normal value, it cannot maintain such variation for any length of time. Money is in a less degree freely reproduced than most of the other goods with which it can be compared. We should, therefore, without neglecting the influence of the cost of production, expect to find that in the fixation of the value of money supply and demand are the dominant factors. ”

“ Labor legislation is a matter of State concern, and while in America the laws of one State have frequently been enacted bodily by other States, there is still much diversity among the States. In reviewing the labor legislation in force in the United States, we must content ourselves with a general account of the various types of enactments, without attempting to specify where such laws are in force. The most usual subjects of legislation concern the hours of labor, mode of paying wages, and protection of machinery to avoid accidents. ”

“ Much more suitable, therefore, for the purposes of fiscal administration are bonds which are not limited as to term of payment, but which can be redeemed at their face value at the will of the Government. ”

“ When there are no specific sinking-fund attachments to public debts, the repayment of public debt might be regarded, so far as the contract with creditors is concerned, as a work of supererogation. But just as a business man gains in credit by prompt or anticipated payments, so a policy more liberal to creditors than legal requirements demand redounds to the credit of the State. Repayment of the principal is not essential, as we have seen, to the maintenance of public credit, as States whose debt continues to increase stand in good repute, but is a policy to be recommended. ”

“ If the principle of convertibility is not maintained, bank money becomes paper money pure and simple. It has usually been by the failure of banks or of governments to maintain the promise of redemption that such money has arisen. When this takes place paper money falls in value, or, as it is usually expressed, coin is at a premium. This would not of itself cause a disappearance of coin, but it usually happens that paper money is so multiplied in volume that coin disappears and paper becomes the sole standard. ”

“ The country storekeeper who takes from the farmer butter and eggs on account, paying in supplies as his customer's needs arise, furnishes a homely illustration of the way in which credit minimizes the demand for money. In the larger business world the trade relations are rarely of such great simplicity, but by the mechanism of centres of credit or banks the transactions of a town or of even larger areas are reduced to a mutual exchange of goods and debts are canceled without the intervention of money. ”