9. The Amount Needed Also Depends On The Rapidity Of Their Circulation

Again, less money, including its substitutes, is needed than formerly because it circulates more rapidly. If with $100 in the possession of the people in village A twice as many payments are made among them in the same space of time as $200 in village B, the $100 in village A is twice as effective, accomplishes twice as much work as the $200 among the people in the other. It is unquestionably true that money circulates with far more rapidity in the city of New York than among the sparsely settled districts of the frontier. Consequently, the people in New York transacting a similar amount of business would not require so much money as the same number of people on the frontier.

The effect, therefore, of circulating money and its substitutes more rapidly is the same as an increased supply. If money circulating in New York, equal in amount to that circulating in Arizona, does twice as much work, it is just as effective as twice the amount would be circulating at Arizona speed.

Of all the agencies that have the effect of quickening the circulation of money, banks are the most effective. A bank dislikes to keep any more money around than prudence requires. Its profits are made by lending money, not by keeping it. of course, enough must be kept to answer all demands; but every wide- awake banker, after making due provision of this kind, desires to lend, if possible, the remainder. A bank does not keep money in its vaults as an individual keeps money in his pockets, day after day, before making any use of it. A workingman receives his month's wages, and during the month he continues to part with his money; and it may be that at the end of thirty days all is gone; but a bank usually keeps money no such length of time. If money, which a bank thinks will not be demanded at once, is deposited, the same is lent as soon as possible, to-day or to-morrow. Money in possession of a banker is restless, and like the waters of the sea is kept in constant motion. The consequence is that through the agency of these institutions less money is needed than otherwise would be to effect the exchanges of business.

10. The Amount Needed Also Depends On The Use Of Credit

The use of credit lessens the use for money. If a merchant buys a large bill of goods on credit, of course no money is needed for the purpose of making the purchase. It may be asked, will not money be needed at a later period, when the credit expires, as much, in truth, as though no credit had been given? Is not the effect of the transaction simply to delay the payment of money, and not to lessen the use of it? Less money will be needed, as will be soon shown.

We are all familiar with the wonderful machinery for economizing the use of labor. American inventions for plowing, seeding, cultivating, reaping, threshing, and for almost every other task of the farmer have been carried to a high degree of perfection and are generally used by American farmers. Their effect in economizing the use of labor none will deny. This fact is one of the most common of daily life.

Another fact is equally true, that modern commerce has found a way of making payments that dispenses with the use of money in all except a small percentage of the entire volume of transactions. Consequently, the use of silver and gold and money of every kind is becoming less needful. The service that silver would have performed in making payments, had its coinage been continued, is insignificant compared with the use of its substitutes. What are these? How do they work?

"A Pennsylvania farmer sells a quantity of wheat to an agent for a wheat merchant in New York. The merchant sells it to an English purchaser living in Liverpool. How is the New York merchant paid? He draws an order or a bill on the Liverpool buyer to pay the amount due to the seller, to a third person, or to himself. The obligation is the same in either case. The New York merchant, how ever, wishing to use the amount mentioned in the bill at once, goes to a house that deals in bills of exchange and sells it, getting a check for the amount on a New York bank. What becomes of the bill? It is sent to Liverpool for collection, and at the time of its maturity is presented for payment and a check for the amount is given on an English bank. Is that check collected in money and the amount sent to this country? What is the everyday answer?

"Another merchant in New York has bought woolen goods in Bradford, England, and he must pay for them.

He can do this in two ways. father he can send gold for the amount, or he can go to a house that deals in foreign bills of exchange and buy a bill, perhaps this very one given for wheal or another, for the amount of his purchase, that is owed by some person in England, and send this to his creditor in payment of his. goods. The English seller accepts the bill and his American buyer is discharged Suppose the amount of the American buyer's purchase of goods is the same as the English buyer's purchase of wheat, what has happened? No gold has been sent to either country to pay these debts, and yet both have been paid. The American goods buyer no longer owes the English seller, nor does the English wheat buyer owe the American seller. The debt on each side has been actually paid, and yet not a dollar in money has been paid by any one: no gold or any other kind of money has gone across the sea. These facts no one can dispute.

"The transaction may be followed two steps farther. The Bradford goods seller, by accepting the bill drawn on the Liverpool wheat buyer, releases the New York buyer just as fully as though he had sent gold to him, and the Liverpool buyer, by paying the Bradford goods seller, has just as fully discharged his obligation to the New York wheat merchant or the banking house that bought the bill of him as though he had sent gold to him. And yet, we repeat, no money has been used on either side. What, then, has happened in this double transaction? The answer is very evident. An exchange of commodities has taken place; the wheat has been exchanged for the woolen goods.

"In the exchanges between the leading nations this is the mode of making them. The debts incurred on the one side and on the other are discharged by offsetting other debts against them. The debts first incurred are not carried along in a new form; they are actually paid, as truly as though money had been used. Let this fact, therefore, be remembered, that in international payments very generally no money of any kind is used, the trans actions consisting really in an exchange of commodities through credit devices. When these are not of equal value the difference is sometimes paid in gold; often the indebtedness runs for a considerable period and then the tide of trade turns in the other direction and an equalization takes place; sometimes settlements occur by taking securities, bonds, stocks, and the like; sometimes purchases are made of other property.

"It may be asked, are not a couple of checks around somewhere that have not been paid? Is not money required to pay them? In tracing out their course it will be seen what a small part money plays in our transactions at home. Returning to the New York wheat merchant who has drawn a bill on the Liverpool buyer and sold it to the New York banking house dealing in bills of this nature, he gets a check for the amount on a bank in that city. Of course the merchant could go to the bank and get the amount, but usually he deposits it in the bank on which it is drawn or in another. If he deposits the check in the bank on which it is drawn, that bank credits the depositor and charges the drawer with the amount, and the transaction is ended. No money is paid; the drawer of the check has so much less to his credit, the depositor as much more The money that may or may not be in the possession of the bank is not in the least disturbed by the transaction; a little bookkeeping has been done, nothing more.

"Suppose the check is drawn on another bank, what then? The depositor puts it in his bank for Collection.

Does the bank get money for it? Perhaps, but more frequently it does not. Why not? Suppose the check, deposited in the Broadway Bank, is drawn on the Arctic Bank, and is presented either directly or through the clearing house for payment. The Arctic Bank admits that the check is perfectly good, but says it has a check deposited with it tor the same amount on the Broadway Bank. The one offsets the other. It would be folly for each bank to demand money of the other; the easier and common-sense way is for each bank to exchange checks, which is done, and the debts are canceled. The amount of the check received from the Arctic Bank is chargeable to the depositor who drew it, and a similar amount is credited to the merchant who deposited the check in the Broadway Bank for collection. This in effect is the nature of these transactions. No money is used in this case any more than in the other. And yet these checks are paid by offsetting one against the other. Both of the checks represent sales; the one was given for a bill of exchange, the other, perhaps, for merchandise. The entire circle of transactions has been completed, and without using a dollar. And the check given by the Liverpool wheat buyer has run the same course.

"The fact can not be denied, that in buying and selling stocks, lands, goods, almost everything, less and less money is constantly used in the more civilized countries where banks are most numerous, and the agencies above described are most highly perfected. In many sales only a very small percentage of money is used. Offsets are daily made to the amount of many millions through the clearing house; and a small sum of money is sufficient to complete them. Nor are the debts thus brought together carried along in a new form, requiring money at some time or other to settle them. The debts are actually set off against each other, and discharged; they no longer exist in legal or in any form; they are as much out of the way as though money had been paid." 1