Chapter VI: Part 6

Our total exportation for the twelve months ended June 30, 1898, amounted to the unprecedented sum of nearly $1,250,000,000 ($1,231,329,950).[4] This is an amount almost a quarter of a billion dollars greater than ever before, the only years when the export even approximated this amount being 1897 and 1892, when the exportation was slightly over a billion dollars in each case. Of this exportation the sum of $855,000,000, or seventy one per cent. of the whole, was for the PRODUCTS OF AGRICULTURE, the principal items being (1) "breadstuffs," including wheat and wheat flour, corn and cornmeal, oats and oatmeal, rye and rye flour, $335,000,000; (2) cotton, $231,000,000; (3) "provisions," including beef and tallow, bacon and hams, pork and lard, oleomargarine, and butter and cheese, $166,000,000; (4) animals, including cattle, horses, sheep, and hogs, $47,000,000; (5) raw tobacco, $23,000,000; (6) oil-cake, $12,500,000, and (7) fruits and nuts, $9,000,000. The exports of the products of our mines amounted to only 1.6 per cent. of the total export, or scarcely $20,000,000, the principal items being (1) coal and coke, $12,500,000; (2) crude petroleum, $4,000,000, and (3) copper ore. The exports of the products of the forest amounted to only three per cent. of the total export, or $38,000,000, the principal items being (1) sawed and hewn timber, logs, lumber, shingles, and staves, $28,500,000, and (2) naval stores, including resin, tar, turpentine, and pitch, $9,000,000. The exports of the products of our fisheries amounted to only $4,500,000, or less than one half of one per cent. of the total exports. The exports of the products of our manufactures, according to the official returns, amounted to $289,000,000, or twenty four per cent. of the total export. But this sum included many items which represent raw natural products converted merely into material for subsequent manufacture, as, for example, pig- and bar-iron, planed boards, sole leather, ingot- and bar-copper, cotton-seed oil, and pig- and bar-zinc. The principal items in the true "manufactures" list are (1) machinery, including metal-working machinery, steam-engines and locomotives, electrical machinery, pumping machinery, sewing-machines, typewriting-machines and printing-presses, and railway rails, hardware, and nails, $65,000,000; (2) refined petroleum, $50,000,000; (3) manufactures of cotton, $17,000,000; (4) vegetable oils and essences, $12,000,000; (5) agricultural implements, $7,000,000; (6) cycles, $7,000,000; (7) paper and stationery, $5,500,000; (8) furniture and other manufactures of wood, $5,000,000; (9) tobacco and cigarettes, $5,000,000; (10) fertilisers, $4,500,000; (11) boots and shoes, harness, and rubber shoes, $3,500,000; (12) telegraph, telephone, and other instruments, $3,000,000; (13) bags, cordage, and twine, $2,500,000; (14) books and pamphlets, $2,500,000; (15) sugar, syrup, molasses, candy, and confectionery, $2,000,000; (16) spirits, including brandy and whisky, $2,000,000; and (17) clocks and watches, $2,000,000.

FOOTNOTE:

[4] For the year ending June 30, 1899, the total exportation amounted to $1,204,123,134.

OUR EXPORTS AND THOSE OF GREAT BRITAIN COMPARED

The significance of these figures descriptive of our export trade will be better understood from a few comparisons. Our total exportation for the year 1897-8 was, as said before, in round numbers, $1,250,000,000. For the year previous it was over $1,000,000,000. The exportation of Great Britain for the year 1896 was $1,500,000,000. For the year 1897 it was almost the same amount. For the year 1895 it was $1,450,000,000. But whereas our exportation of breadstuffs, provisions, animals, fruit, etc., and of raw materials, such as cotton, lumber, ores, etc., amounts to probably 77 or 78 per cent. of our total exportation, while our exportation of manufactured goods amounts to not more than 22 or 23 per cent., the exportation of breadstuffs, provisions, raw material, etc., which Great Britain makes is not more than one sixth, or 17 per cent., of her total exportation, while her exportation of manufactured goods is five sixths, or 83 per cent., of her total exportation. For example, Great Britain's export of textiles alone amounts to over $500,000,000 a year (for 1896 $526,647,525), while our total export of textiles, including cottons, woollens, silks, and fibres, is not more than $19,000,000 a year. Great Britain's total export of hardware and machinery amounts to over $250,000,000 a year; our total export of these articles does not amount to more than a third of this sum. On the other hand, Great Britain's total export of raw materials of all sorts is not more than $100,000,000 a year, while ours of cotton alone is almost two and one-third times that sum. And while Great Britain exports no breadstuffs or provisions to speak of, our exportation of these articles (including animals) amounts to the enormous sum of $855,000,000 a year.

OUR IMPORTS AND THOSE OF GREAT BRITAIN COMPARED

Similar differences with respect to our import trade and that of Great Britain are observable. Our imports do not amount to more than from $600,000,000 to $800,000,000 a year. For the year ended June 30, 1897, they were $765,000,000. For the year ended June 30, 1898, they were $616,000,000. The imports of Great Britain, on the other hand, amount to over $2,000,000,000 a year. For the year 1896 they were $2,210,000,000. For the year 1897 they were $2,225,000,000. But, while our imports, with the exception of coffee, sugar, tea, fruits, and fish, consist chiefly of manufactured articles, such as woollen goods, cotton goods, silk goods, and iron and steel goods, with only moderate amounts of raw material (for example, hides, skins, and furs, $41,000,000; raw silk, $32,000,000; raw wool, $17,000,000), Great Britain, besides importing coffee, sugar, tea, fruits, and fish, the same as we do, and manufactured goods to a far greater amount than we do (not less than $500,000,000 annually), imports likewise an enormous quantity of raw material for her manufactures, all duty free, and a still more enormous quantity of breadstuffs, provisions, etc., also all duty free. For example, for the year 1897 her imports of raw materials for her manufactures were not less than $750,-000,000, while her imports of duty-free food products were not less than $825,000,000. The difference between the two countries, therefore, so far as their foreign trades are concerned is simply this: The United States is an immense exporter of food-stuffs, and also of raw materials for foreign manufacture; but for the raw materials for her own manufacture she depends principally upon her own products. In comparison she is only a moderate exporter of manufactured goods. Great Britain, on the other hand, is an enormous importer and consumer of food-stuffs and also of raw materials for her manufactures. She, in fact, depends very largely upon other countries for her food products and her raw materials, and obtains them wherever she can, very largely from the United States. She is also an enormous exporter of manufactures.

OUR COTTON PRODUCTION AND COTTON EXPORT

The one article of export that is of greatest importance in our commerce is COTTON. The production of cotton in the United States is enormous. It is not far short of 5,000,000,000 pounds per annum. This is probably four times the amount produced upon the whole globe elsewhere. Our export amounts annually to about 4,000,000,000 pounds, with a total value of about $240,000,000. Our greatest competitors in the world's cotton markets are Egypt and India. The export of cotton from Egypt amounts to $50,000,000 annually. The export of cotton from India amounts to $45,000,000 annually. At least one half of our export of cotton goes to Great Britain. Our next greatest customers are (in order) Germany, France, Italy, Spain, and Russia. We send about $7,500,000 worth annually to Japan, and $4,000,000 worth annually to Canada. All our southeastern States produce cotton, but the States that produce it most plentifully are (in order) Texas (about one third of the whole), Georgia, Mississippi, and Alabama. The area under cultivation in the whole country is about 21,000,000 acres, which is about one sixth of the area devoted to corn, wheat, and oats, or one half the area devoted to hay. The areas of greatest cotton production are (1) the "Yazoo bottom," a strip on the left bank of the Mississippi extending from Memphis to Vicksburg, and (2) the upper part of the right bank of the Tombigbee. The productivity of cotton is much higher in the United States than it is in India, averaging not far short of 200 pounds per acre, as against less than 100 pounds in India. In India, however, the cotton crop has been grown on the same soil for ages, whereas in the United States the practice is to substitute new soils for old ones as soon as crops begin to fail. On the other hand, the United States cotton crop is much less per acre than the crop in Egypt. There the yield per acre is from 300 pounds to 500 pounds. The remedy for this defect of productivity in our cotton crop as compared with that of Egypt is manuring. Where the manuring is properly attended to our cotton crop is comparable with Egypt's. But the cotton of Egypt is of better quality than the great mass of the cotton crop of the United States (the "upland" cotton crop). On the other hand in the low, flat islands off the coast of Georgia and South Carolina a species of cotton grows ("sea-island" cotton) which is the finest in the world, its fibres being the longest, finest, and straightest, of all cotton fibres produced anywhere, and the most beautiful in appearance in the mass. Of this "sea-island" cotton about three to four million dollars' worth is exported annually at a price averaging from two and one fourth to two and three fourth times the value per pound of the "upland" cotton. The great cotton ports of our country are (in order of amount of exportation) NEW ORLEANS, GALVESTON, SAVANNAH, NEW YORK, CHARLESTON, MOBILE, and WILMINGTON. New Orleans' export is about a third of the whole, and Galveston's about a fifth.

OUR PRODUCTION AND EXPORT OF BREADSTUFFS

The item in the official returns that figures largest for exports is that which is set down as BREADSTUFFS. This term includes wheat, corn, oats, rye, and other grains, and the flours or meals made from these. For the year ending June 30, 1898, our total export of breadstuffs was $334,000,000. This is an enormous increase over the year before, when the amount was not quite $200,000,000.[5] A large part of this increase was due to the high prices for breadstuffs which prevailed in the European markets during the past autumn and winter, but a part of the increase was due to an increased acreage and to good crops. The main products that composed this vast exportation were: wheat, $146,000,000; wheat flour, $70,000,000; corn, $75,000,000; cornmeal, $2,000,000; oats and oatmeal, $22,500,000; rye and rye flour, $9,000,000, and barley, $5,500,000. The magnitude of our breadstuffs exportation can be judged from the magnitude and importance of our exports of wheat and flour as compared with those of other countries. Our average WHEAT EXPORT is two and one half times that of Russia, four and one third times that of Argentina, five and one half times that of India, and almost twenty-five times that of Canada, while it is also four and one half times that of all other countries in the world combined. Our FLOUR EXPORT ($70,000,000) is without a rival. The export from Canada is now not much more than $1,500,000 a year, and the export from Hungary not more than $2,500,000 a year, and these are the only countries with which we have to compete in the western European markets. Still it must be remembered that Hungarian flour, owing to the dryness of the climate in which it is made, is the best in the world, while the flour of Canada made from Manitoba hard wheat is alike unsurpassed. As a rule much more than one half of our total exports of breadstuffs goes to Great Britain. Germany is our next best customer, but her imports of our breadstuffs are not more that a fifth to a tenth of those of Great Britain. France comes next, but her importation of our breadstuffs is still more uncertain, ranging from a half to a hundredth of that of Great Britain. Our other principal customers for our breadstuffs are (1) the other states of Europe, (2) Canada, (3) the countries of South America, (4) the West Indies, (5) Hongkong, (6) the islands of the Pacific, and (7) British Africa. Our exportation of breadstuffs to Japan and China (direct)[6] is still inconsiderable. Since the close of the War of the Rebellion our exportation of wheat has increased thirtyfold and our exportation of flour fifteenfold. Our chief wheat-growing States are Minnesota and California, each with about 50,000,000 bushels a year; then Kansas, North Dakota, Illinois, and South Dakota, each with about 30,000,000 bushels a year; and then Ohio, Indiana, Nebraska, Pennsylvania, Missouri, and Michigan. The best wheat is grown in the deep black soil, rich in organic matter, of the Red River valley of Minnesota, and in the dry, sunny climate of California. The total yield for 1897 was 530,000,000 bushels, which was about 70,000,000 bushels more than recent averages. The estimate for this year (1898) is over 600,000,000 bushels, which was also the yield for 1891. The total area sown to wheat was for several years about 35,000,000 acres, but the average is now increased to about 40,000,000 acres. Large as is the gross production of our wheat, however, the yield per acre is somewhat small, being only from 12 to 13 bushels as against 18 bushels in Ontario, 20 in Manitoba, 26-1/2 in New Zealand, and 30 in Great Britain. In fact, the wheat yield per acre is lowest in the United States of all the great wheat-producing countries of the world, except Australia (7 to 11-1/2), Italy (10-1/2), Germany (10-1/4), India (9-1/4), and Russia (8). But far greater than our production of wheat is our production of CORN. Of corn we have nearly 85,000,000 acres under cultivation and a production of nearly 2,500,000,000 bushels. Our export of corn, however, is proportionately not large, and figures only to about 210,000,000 bushels a year, with a value (including cornmeal) of about $76,000,000. As is well known, CHICAGO is the great commercial centre of the continent for breadstuffs. NEW YORK is the great port of export for the Atlantic seaboard, SAN FRANCISCO for the Pacific seaboard. DULUTH is the great receiving point for the wheat of the Red River valley and the northern Mississippi. BUFFALO is the great point where the wheat brought down from Chicago, Duluth, etc., in barges, "whale-backs," and immense propellers, is trans-shipped to the small boats of the Erie Canal for carriage to New York. MINNEAPOLIS is the great milling point of the continent, its mills being the largest and most capacious in the world.

FOOTNOTES:

[5] For the year ending June 30, 1899, the amount was $274,000,000.

[6] A portion of the exportation of breadstuffs made to Hongkong is no
doubt intended for consumption in China and Japan.

OUR EXPORT OF PROVISIONS AND ANIMALS

The next most important item in our list of exports is PROVISIONS. But, like "breadstuffs," "provisions" also is a composite term, including two main divisions, "meat products" and "dairy products." Practically there are three main divisions, "beef products," "hog products," and "dairy products." We have in these great products of our country an export trade of $165,500,000 per annum, and if we add "animals," a similar item, we have $46,500,000 more, or a total of $212,000,000 per annum. Our export of fresh beef is nearly 300,000,000 pounds a year. Almost the whole of this goes to Great Britain. Our export of canned beef runs from 40,000,000 to 60,000,000 pounds a year. About three fifths of this goes to Great Britain, the remainder going principally to Germany and other parts of Europe and to British Africa. We have about 50,000,000 cattle upon our farms and ranches, and our production of beef is estimated to be the enormous amount of 5,400,000,000 pounds a year, which is between a third and a fourth of the total quantity produced throughout the world. Of course the greater portion of this is retained for our own home consumption, for we eat more meat per inhabitant than any other people in the world except the English. In addition to our beef we export about 400,000 cattle annually, more than seven eighths of which are taken by Great Britain, our other principal customers being the West Indies and Canada. The principal export, however, among our "provisions" is our HOG PRODUCTS. We export annually of these products 100,000,000 pounds of pork, 850,000,000 pounds of bacon and hams, and 700,000,000 pounds of lard, with a value greater than $110,000,000. As with our beef products, so with our hog products--by far the greatest share goes to Great Britain. Great Britain, however, does not import largely of our pork or of our lard. And though she purchases from us over four fifths of our total export of bacon and hams, she does not pay for them so much as she does for the bacon and hams of Ireland, Denmark, and Canada. The reason for this is that as a rule our corn-fed bacon and hams are too fat--a fault that could be easily remedied. After Great Britain our next best customers for our hog products are Germany (principally in lard), the Netherlands, Sweden, and the West Indies (the latter principally in pork). We keep on our farms from 40,000,000 to 50,000,000 hogs, and our production reaches nearly to 4,600,000,000 pounds of pork, bacon, hams, lard, etc., per annum. A great drawback to our swine-raising industry is the terrible swine plague which so frequently devastates our swine herds. Were this plague stamped out by thorough preventive measures our swine industry would soon become very much larger and more profitable. The third principal item in our provisions export trade is "dairy produce." Our export of butter now amounts to 30,000,000 pounds a year. Our cheese export, once much greater, is now about 50,000,000 pounds a year. As in our beef products and in our hog products so again in our dairy products Great Britain is our chief customer. But our butter export to Great Britain is only one twelfth of her total importation of butter, and our cheese export to Great Britain is only about one eighth of her total importation of cheese. Our cheese has lost its hold on the English market because of its relative deterioration of quality, and its export is not more than a half or a third of what it once was. Much of our butter also is not suited to the English taste. But both our cheese and our butter are now improving in quality. Our great competitor in the cheese export trade is Canada. Canada's export of cheese to Great Britain is $15,000,000 annually, while ours is only a fifth of that amount. Our great competitor in butter is Denmark. Denmark's export of butter to Great Britain is $32,000,000 while ours is not more than a fourteenth of that sum. Our competitors in the markets of Britain for cattle are Canada and Argentina, but their exports together, however, are less than a third of ours. Our competitors in the British markets for the sale of meats are principally the Australasian colonies and Argentina, but their principal exportation so far is chilled mutton, which they send to Britain to the amount of many million dollars annually (Argentina alone $5,000,000 a year, New Zealand alone $10,000,000 a year), while our exportation of mutton is practically nil. We do, however, export $1,000,000 worth of sheep a year, but in this item we are frequently far exceeded by Canada. CHICAGO is, of course, the great commercial centre of the continent for "provisions" and "live stock," and NEW YORK the great shipping port. Of the entire export trade of the whole country New York does two fifths. BALTIMORE comes next with about one ninth. Then (in order) come PHILADELPHIA, BOSTON, and NEW ORLEANS. The chief centres of our great provision and live-stock trade, other than Chicago, are CINCINNATI, KANSAS CITY, INDIANAPOLIS, BUFFALO, and OMAHA.

OUR FOREIGN CARRYING TRADE

One aspect of our foreign trade is not so well understood as it ought to be. Our foreign commerce is carried on largely in foreign ships. The reason is that no vessel is allowed to be registered as belonging to a United States owner unless she is built in the United States, and it therefore seems as if our ship-builders could not compete (in price) in the building of steel and iron ships with those of Great Britain and Germany. Formerly, when wooden ships were used, our foreign trade was carried on in our own vessels, and our "clipper" sailing vessels beat the world. In 1859 seventy per cent. in value of our foreign trade was carried in American vessels. Since that date the proportion has decreased steadily until in 1896-97 it was only eleven per cent., and for 1897-98 it was even less than this. During the five years 1881-85 it averaged barely twenty per cent. Taking into consideration tonnage only the proportion at present varies from twenty five to thirty per cent., showing that the American vessels are used for carrying the cheaper sorts of goods. The aggregate tonnage burden of vessels belonging to the United States registered as engaged in the foreign trade 1896 was for 792,870 tons. For the same year the aggregate tonnage burden of vessels belonging to Great Britain engaged in the foreign trade was considerably more than ten times that amount. Of our export trade to Europe United States vessels carry only five and one half per cent., and of our export trade to Africa only four and one half per cent. But of our export trade to Asia and Oceanica our own vessels carry twenty six and one half per cent., while of our export trade to other countries on the American continent our own vessels carry nearly forty per cent. But as our Atlantic trade is seventy six per cent. of the whole, and as our trade elsewhere than on the Atlantic is more than one third carried by sailing-vessels, it is evident how largely our steamship ocean carrying trade has been allowed to fall into the hands of foreigners. Seven tenths of our total export trade, and nearly two thirds of our total foreign trade, both export and import, are carried in British vessels. The next greatest carriers of our foreign trade are, first, the Germans, then ourselves, then the Norwegians, then the Dutch, then the French, then the Belgians.

EXAMINATION PAPERS

NOTE.--_The following questions are given for the purpose of
indicating to the student the sort of knowledge he ought to be
possessed of after he has made a careful study of the papers of
the course. The student is recommended to write out carefully
the answers to the questions asked. Only such answers need be
attempted as can be made from a careful study of the papers._

_PART I_

1. GREAT BRITAIN. Give as full an account as you can of the causes
which have made London the great commercial centre of the world.

2. GREAT BRITAIN. England is said to be "a beehive of mercantile and
manufacturing industry." Give reasons for this statement and also show
how England has become such.

3. GREAT BRITAIN. (_a_) Describe the foreign trade of Great Britain.
(_b_) Describe the steps taken by Liverpool, Manchester, and Glasgow
to improve their natural facilities for external trade.

4. FRANCE. (_a_) Describe the conditions which (1) conduce toward, and
(2) militate against, France's being a great commercial nation. (_b_)
Give an account of the distinctive manufactures of France.

5. GERMANY. (_a_) Give an account of what Germany has accomplished in
technical education. (_b_) Compare Germany and France as commercial
nations. (_c_) Give a brief account of Germany's foreign trade.

6. SPAIN AND ITALY. (_a_) Why are Spain, Italy, and Turkey sometimes
called "the three decadent nations of Europe"? (_b_) Give some account
of Spain's foreign trade. (_c_) Give an account of the conditions that
militate against Italy's prosperity as a trading nation.

7. RUSSIA. (_a_) Describe the social condition of the Russian people.
(_b_) What are the "artels" of Russia? (_c_) Describe Russia's export
trade.

8. INDIA. (_a_) Describe the present condition of the manufactures of
India. (_b_) Give a brief account of India's trade--(1) external, (2)
internal.

9. CHINA. (_a_) Give an account of China's size, population, and trade
resources. (_b_) Give an account of China's present foreign trade.
(_c_) Give an account of the trade possibilities of China, and show in
what manner an increase of the foreign trade of China is most likely
first to occur.

10. JAPAN. (_a_) Describe the transformation which in recent times has
been witnessed in the Japanese nation. (_b_) Describe Japan's
manufactures. (_c_) Show in what respects an increase in the foreign
trade of Japan is presently possible.

_PART II_

1. AFRICA. (_a_) Describe the "partition of Africa." (_b_) Describe
more particularly Great Britain's possessions in Africa. (_c_)
Describe South Africa's mineral wealth.

2. AUSTRALIA. (_a_) Describe Australia's "peculiarities." (_b_)
Enumerate the political divisions of Australia, and for each describe
briefly (1) its climate, (2) its resources and trade.

3. SOUTH AMERICA. (_a_) Describe the social and political condition of
the various peoples of South America. (_b_) Describe the agricultural
resources and export trade of Argentina. (_c_) Describe (1) the
resources, and (2) the export and import trade, of Brazil.

4. CANADA. (_a_) Describe Canada's resources (1) in forest wealth, (2)
in minerals, (3) in fisheries. (_b_) Describe Canada's agricultural
trade. (_c_) Describe Canada's trade with the United States.

5. THE UNITED STATES. (_a_) Describe the export trade of the United
States. (_b_) Compare our export trade with that of Great Britain.
(_c_) Compare our import trade with that of Great Britain.

6. THE UNITED STATES. (_a_) Describe our cotton production and our
cotton export trade. (_b_) Describe briefly our export trade in
"breadstuffs." (_c_) Describe briefly our export trade in "provisions"
and "animals."

FINANCE, TRADE, AND TRANSPORTATION[8]

I. NATIONAL AND STATE BANKS

ORIGIN OF BANKING INSTITUTIONS

The world has had its bankers and money-changers for thousands of years. Babylonian tablets have been found which record banking transactions which took place in the reign of Nebuchadnezzar. Modern banking institutions, however, had their origin in the twelfth century. The first institution of this character in Europe was the Bank of Venice, founded A. D. 1171. It was based upon a forced loan of the republic. Funds deposited in it could not be withdrawn, but were transferable on the books at the pleasure of the owners. The Bank of Genoa was founded in 1407, and for many years was one of the principal banks of Europe. It was the first to issue circulating notes; these were negotiable only by indorsement--that is to say, they were not made payable to bearer. This was a long step in advance of the earlier system of deposit transfers which was also employed by this bank. The Bank of Amsterdam, established in 1607, was the earliest considerable institution of the kind which looked to the promotion of commerce. The Bank of Hamburg, established in 1619, was a bank of deposit and circulation based upon fine silver bars. The deposits were confined to silver. The Bank of England is more than 200 years old and is to-day acknowledged to be the greatest financial institution in the world. Nearly all the paper money of England is issued by this bank. This currency is based partly upon securities and partly upon deposits of coin. There are three or four banks in the United States more than one hundred years old. In 1781 Robert Morris, then superintendent of finance, submitted to Congress a plan for the establishment of the Bank of North America at Philadelphia. In 1784 the State of Massachusetts incorporated the Massachusetts Bank. The Bank of New York was chartered in 1791.

FOOTNOTE:

[8] SUGGESTIONS AS TO METHOD OF STUDY

1. Read the lessons as printed very carefully. The aim will be to give
fundamental knowledge as to the organisation and conduct of modern
business.

2. Books will not be necessary. The student, however, who wishes to
make a more thorough study of the national banking system will find
excellent chapters on the subject in "Carroll's Principles and
Practice of Finance" (New York: Putnams) and "White's Money and
Banking" (Boston: Ginn & Co.).

3. Take up the papers of the course paragraph by paragraph and ask
yourself the reason why each is introduced. Discuss with your friends
the advantages or disadvantages of particular requirements.

OUR NATIONAL BANKING SYSTEM

The national banking system of the United States was established by an act of Congress in 1863, revised in 1864, and amended by later legislation. The great advantage of the system, it is said, is the feature of uniformity, the fact that it brings the banking business of the whole United States under one authority and under the supervision of one set of administrative officers. The note-issuing department is subordinate in its public usefulness to the facilities afforded by banks and clearing-houses for the interchange of credits. The essential features of national banks are briefly set forth as follows:

1. There is a bureau of the Treasury Department having charge of all
matters relating to national banks, the chief officer of which is the
comptroller of the currency.

2. Any number of persons, not less than five, may form an association
for banking purposes, to continue not more than twenty years, but
renewable for twenty years with the approval of the comptroller.

3. The powers of the bank are limited to the discounting of promissory
notes, drafts, bills of exchange, and other evidences of debt;
receiving deposits, dealing in exchange, coin, and bullion, loaning
money on personal security, and issuing circulating notes. It cannot
hold real estate except such as may be necessary for the transaction
of its business, or such as may have been taken as security for debts
previously contracted in good faith.

4. There can be no national banks anywhere of less capital than
$50,000, and these small ones are restricted to places of not
more than 6000 inhabitants. In cities of more than 6000 and less
than 50,000 inhabitants there can be no bank of less than
$100,000 capital, and in cities of 50,000 inhabitants or more
none of less than $200,000. One half of the capital must be paid
in before the bank can begin business and the remainder must be
paid in monthly instalments of at least ten per cent. each.

5. Shareholders are liable for the debts of the bank to an amount
equal to the par value of their shares in addition to the amount
invested therein.

6. Each bank having a capital exceeding $150,000 must deposit in the
treasury of the United States registered interest-bearing bonds
to an amount not less than $50,000. Those having a capital of
$150,000 or less must deposit bonds equal to one fourth of their
capital stock. Each bank may issue circulating notes to the
amount of ninety per cent. of the market value of the bonds
deposited by it, but not exceeding ninety per cent. of the par
value of the same, and not exceeding ninety per cent. of the
paid-in capital of the bank; but no bank is compelled to issue
circulating notes. No bank-notes shall be issued smaller than $5.
The notes are receivable at par for all dues to the United States
except duties on imports, and are payable for all debts owing by
the United States within the United States except interest on the
public debt and in redemption of the national currency.

7. Every bank in certain designated cities, called reserve cities,
must keep a reserve of lawful money equal to twenty five per
cent. of its deposits. All other banks must keep a like reserve
of fifteen per cent., but three fifths of the said fifteen per
cent. may consist of balances on deposit in banks approved by the
comptroller in the reserve cities.

8. Each bank must keep on deposit in the treasury of the United States
lawful money equal to five per cent. of its circulation as a fund
for redeeming the same. This five per cent. may be counted as
part of its lawful reserve. This does not relieve banks from the
duty of redeeming their notes at their own counters on demand.

9. One tenth of the net profits must be carried to the surplus fund
until it is equal to twenty per cent. of the capital.

10. A bank must not lend more than one tenth of its capital to one
person, corporation or firm, directly or indirectly, nor lend
money on the security of its own shares, nor be the purchaser or
holder of its own shares unless taken as security for a debt
previously contracted in good faith, and if so taken they must
be sold within six months under penalty of being put in
liquidation.

11. Each bank must make to the comptroller not less than five reports
each year, showing its condition at times to be designated by
him, and he may call for special reports from any particular
bank whenever he chooses to do so.

12. Each bank must pay to the treasurer of the United States a tax
equal to one per cent. per annum on the average amount of its
notes in circulation. The shares are liable to taxation by the
States in which they are situated at the same rate as other
moneyed capital owned by the citizens of such States.

13. Any gain arising from lost and destroyed notes inures to the
benefit of the United States.

14. The comptroller has the absolute appointment of all receivers and
fixes their compensation. All moneys realised from the assets
are paid into the treasury to the credit of the comptroller, and
all dividends are paid out by him.

15. Over-certification of cheques is strictly prohibited, rendering
officers or clerks liable to imprisonment.

16. National bank directors are by law individually liable for the
full amount of losses resulting from violations of the national
banking laws.

STATE BANKS

Upon the establishment of the national banking system the greater number of the banks incorporated under the laws of the several States were organised as national banks. With others, however, the rights of issue did not outweigh some inconveniences of the national system, and as a result there is now an important class of banks, and loan and trust companies, organised under State legislation and carrying on a deposit and loan business. The regulations under which they work are necessarily diverse, and the amount of public supervision over them varies in different states. The State banks in existence when the national banking system was organised were obliged to retire their note circulation, owing to the fact that the government imposed a tax of ten per cent. on their circulation. The object of the tax was to secure the retirement of the State bank-notes to make room for the circulation of the national banks. The internal mechanism of State banks differs but slightly from that of national banks.

II. SAVINGS BANKS AND TRUST COMPANIES

SAVINGS BANKS

Nearly $2,000,000,000 is deposited in the savings banks of the United States. This large sum represents the savings of about 5,000,000 people. The primary idea of a savings bank and of the post-office and other forms of saving institutions in foreign countries is to encourage thrift among the masses of the people.

The older savings banks, especially those in the eastern States, have no capital stock. That is to say, they are mutual in their form of organisation. Their capital is the accumulated deposits of a large number of people. The depositors are the owners. When taxes and other expenses are paid and a proper reserve set aside, the remaining profits go in the form of interest to the depositors. Many of the savings banks in the western States are capitalised as are other financial institutions, and on the Pacific coast they have capital stock or its equivalent in the form of a reserve fund in which the majority of the depositors are not interested otherwise than so far as it affords security for their deposits.

As these banks are the custodians of the surplus savings of large numbers of people the laws of the several States have hedged them about with many safeguards, not only for the protection of the depositors but of the institutions themselves. It is eminently right and proper that the State, through its bank commissioners or otherwise, should so far supervise the operations of savings banks as to see that they perform their part of their contract with depositors.

Safety, at best, is relative only; there is no absolute safety
for the twenty-dollar piece a man has in his pocket, whether he
is on the street, at his office, or by his own fireside. We are
reminded that 'riches take to themselves wings' and that
'thieves break through and steal.' No savings bank can keep
money on hand or deposit it or loan it with absolute safety. All
is comparative. It is a peculiarity of money that each dollar
requires watching; general supervision is insufficient; hence it
is that the safety of moneyed institutions depends upon the
capacity and honesty of those in control, and not upon adherence
to arbitrary rules. No set of rules can be adopted that will
bind dishonest men nor that will compensate for want of
experience and ability of honest ones.

There is really no conflict between commercial and savings banks. In fact, a large number of the commercial banks of a country allow interest upon average balances and standing deposits in the same manner as savings banks. Primarily the savings bank creates wealth, while the commercial bank handles it; the savings banks are creative, while the commercial banks are administrative. The aim of the savings bank is to gather money and invest it safely and thus bring profit to the depositor; the aim of the commercial bank is to lend money at fixed charges and thus bring profit to the institution. The former opens its doors to savers, the latter to borrowers. One serves by receiving and keeping and the other by lending. The savings bank aims at making men savers as well as producers. It offers the aid of the strong, who can manage well, to the weak and inexperienced. If the 5,000,000 depositors of savings in the United States were to hide away their own savings nearly $2,000,000,000 would be withdrawn from circulation. The savings bank invests its money. Its managers are as a rule intelligent men, competent to make safe investments in solid securities. The best savings banks are conservative and do not encourage speculation.

The rules and regulations of savings banks differ largely. In some institutions deposits of a dime at a time are accepted; in others a dollar is the limit. Deposits usually begin to draw interest on the first day of each quarter, but they are entitled to it only if they remain until the end of the half-year. Thus money deposited on the 1st of January is entitled to six months' interest on the 1st of July, though it is not entitled to any interest if withdrawn in June. Some few banks allow interest to begin on the 1st of each month. Most savings banks do not permit money to be withdrawn short of thirty days' notice. Students of this course who are interested in securing definite information upon this subject regarding any particular bank should apply to that bank for a set of its rules and regulations for the information of depositors.

TRUST COMPANIES

There has grown up in this country a class of financial institutions which take a sort of middle ground between the commercial bank and the savings bank, so far as their service to the public is concerned. These are what are known as trust companies. National banks are prohibited by law from making loans on real estate, and though State banks are not hedged in this way, as a matter of good banking they usually avoid loans of this character. The policy of commercial banks is to make a great many comparatively small loans on short-time paper, while that of the trust company is to make large loans on long-time securities. The deposits of trust companies consist largely of undisturbed sums such as might be set aside by administrators, executors, trustees, committees, societies, or from private estates. They are such as are not likely to fluctuate greatly in amount. From the very nature of their deposits trust companies find it convenient and profitable to make larger loans and at longer periods than do ordinary banks. Trust companies not only receive moneys upon deposit subject to cheque and for savings, and loan money on commercial paper and other securities, as do commercial banks; but they also act as agents, trustees, executors, administrators, assignees, receivers for individual properties, and corporations. They frequently assist as promoters or reorganisers of corporations and in the sale of stocks, bonds, and securities. They act also as agents for the payment of obligations maturing at future dates, such as the premiums on insurance, interest on mortgages and bonds, etc. Trust companies are organised under the laws of the State in which they exist and are usually subject to all the supervision required in the case of State banks.

III. CORPORATIONS AND STOCK COMPANIES[9]

CORPORATIONS

Stock companies are usually referred to as corporations, though all corporations are not stock companies. A corporation is a body consisting usually of several persons empowered by law to act as one individual. There are two principal classes--(1) public corporations and (2) private corporations. Public corporations are not stock companies; private corporations usually are. Public corporations are created for the public interest, such as cities, towns, universities, hospitals, etc.; private corporations, such as railways, banks, manufacturing companies, etc., are created usually for the profit of the members. Corporate bodies whose members at discretion fill by appointment all vacancies occurring in their membership are sometimes called close corporations.

POWER TO BE A CORPORATION IS A FRANCHISE

In the United States the power to be a corporation is a franchise which can only exist through the legislature. There are two distinct methods in which corporations may be called into being: First, by a specific grant of the franchise to the members, and, second, by a general grant which becomes operative in favour of particular persons when they organise for the purpose of availing themselves of its provisions. When the specific grant is made it is called a charter. In the case of private corporations the charter must be accepted by the members, since corporate powers cannot be forced upon them against their will; but the charter is sufficiently accepted by their acting under it. When special charters are not granted individuals may voluntarily associate, and by complying with the provisions of certain State laws may take to themselves corporate powers. In some of the States private corporations are not suffered to be created otherwise than under general laws, and in others public corporations are created in the same way.

FOOTNOTE:

[9] For a preliminary treatment of the subject of this lesson the student is referred to Part I. of this book, entitled "General Business Information," especially Lessons XII. and XV.

A CORPORATION MUST HAVE A NAME

A corporation must have a name by which it shall be known in law and in the transaction of its business. The name is given to it in its charter or articles of association and must be adhered to. The necessity for the use of the corporate name in the transaction of business follows from the fact that in corporate affairs the law knows the corporation as an individual and takes no notice of the constituent members.

CORPORATE INTERESTS

In municipal corporations in the United States the members are the citizens; the number is indefinite; one ceases to be a member when he moves from the town or city, while every new resident becomes a member when by law he becomes entitled to the privileges of local citizenship. In corporations created for the emolument of their members interests are represented by shares, which may be transferred by their owners, and the assignee becomes entitled to the rights of membership when the transfer is recorded; and if the owner dies his personal representative becomes a member for the time being. In such corporations also shares may be sold in satisfaction of debts against their owners.

ADVANTAGES OF CORPORATIONS AND JOINT-STOCK COMPANIES OVER PARTNERSHIPS

The following are given as a few of the advantages which are claimed for corporations and joint-stock companies over partnerships:

1. Union of capital without the active service of the investors.

2. Better facilities for borrowing. It is a common thing for a
partnership to be changed to a stock company for the express purpose
of raising money by the issue of bonds or stock.

3. Limited agency of directors. A partner may pledge and sell the
partnership property, may buy goods on account of the partnership,
may borrow money and contract debts in the name and on the account
of the partnership. Directors of a joint-stock company must act in
accordance with the provisions of the by-laws of the company.

4. The continuous existence of a company.

5. New shareholders are admitted more easily than new partners.

6. A retiring partner is still liable for existing debts. A
shareholder may retire absolutely by selling his stock and
having it legally transferred.

IV. BORROWING AND LOANING MONEY[10]

THE MONEY MARKET

Money, like other articles of commerce, has for hundreds of years had its fields for the production of the raw products, its manufacturing establishments, its markets and exchange centres, its sellers and buyers, its wholesale and retail dealers, and its brokers and commission merchants. Out of this trade in actual coin has grown a trade in paper notes, which are really only promises to pay coin, and out of this latter trade has grown up during recent years a still further enormous trade in securities representing all kinds of property. Very often these securities are based solely upon the credit of the names attached to them, so that our modern system of borrowing and loaning money is really a system of borrowing and loaning credit. When our government borrows $100,000,000, as it did a few years ago, it gives "its bond" that the money will be paid. When States, or cities, or railroads, or other corporations borrow money they issue bonds guaranteeing payment at a particular time. When an individual borrows money he gives his "bond" in the form of a promissory note. These bonds pass from hand to hand and have a fairly constant value in the money market. They really represent the money trade to a much larger extent than does actual coin, so that the borrowing or loaning of money really means, to a very large extent, simply the borrowing or loaning of credit. If we borrow a $10 gold piece we borrow money; if we borrow a $10 bill or an indorser's name for the back of our note we simply borrow credit--in the one instance the credit of the United States and in the other the credit of the man who indorses our paper.

FOOTNOTE:

[10] The student is also referred to Part I. ("General Business
Information"), Lesson IX.

BORROWING FROM BANKS

It is the business of a bank to loan money to responsible persons within reasonable limits. The regular customer of the bank is entitled to and will receive the first consideration if the demand is larger than the bank can safely meet. A business man should not hesitate, when occasion requires, to offer his bank any paper he may want discounted, if in his opinion it is good, nor should he be offended if his banker refuses to take it even without giving reasons. A portion of the loans of many banks consists of investments in solid bonds, but the bulk of the loans of banks is made on commercial paper. Time and demand loans are made upon collaterals of many descriptions. The larger banks loan on an average from $50,000 to $100,000 a day. Banks _discount_ paper for their depositors--and simply term the operation discounting; but when they go outside of their line of depositors in making investments in time paper they call it _buying_ paper. They generally buy from private bankers and note brokers. National banks are prohibited from loaning over ten per cent. of their capital to any one individual or corporation except upon paper representing actually existing merchandise.

WHAT ARE COLLATERALS?

If a business man borrow $1000 from a bank on his note and give ten shares of stock to the bank, to be held by it simply as security, the stock thus given would be termed collateral. These collaterals are not the bank's property and the bank is responsible for their safe keeping. If coupons mature while bonds are being held as collateral, the owners are usually allowed to collect the amount for which they sell. Sometimes one note is given as collateral security for another which is discounted.

ACCOMMODATION PAPER

Notes and acceptances that are made in settlement of genuine business transactions come under the head of regular, legitimate business paper. An accommodation note or acceptance is one which is signed or indorsed or accepted simply as an accommodation and not in settlement of an account or in payment of an indebtedness. With banks accommodation paper has a deservedly hard reputation. However, there are all grades and shades of accommodation paper, though it represents no actual business transaction between the parties to it and rests upon no other foundation than that of mutual agreement. No contract is good without a consideration, but this is only true between the original parties to a note. The third party, or innocent receiver or holder of a note, has a good title and can recover its value even though it was originally given without a valuable consideration. An innocent holder of a note which had been originally lost or stolen has a good title to it if he received it for value, the law justly protecting such a holder against the fault or carelessness of others.

NOTE BROKERS

Merchants sell a great many of their notes in the open market--that is, to note brokers. The banks buy these notes from the note brokers. The assistance of the broker who handles commercial paper is a necessary and valuable aid to the purchasing bank. Fully three fourths of all the paper purchased by banks in large cities is purchased upon the simple recommendation of the note brokers. As a rule these brokers simply transfer the paper without guaranteeing by indorsement its payment. Notes bought by banks from note brokers without their indorsement are held to be guaranteed by them to be all right in all points except that which covers the question of whether they will be paid or not. The bank uses its best judgment in taking the risk. If the note dealer in selling notes to a bank makes what he believes to be fair and honest representations regarding any particular paper--statements of such a straightforward type that upon them no charge of false pretenses can be made to rest--he simply guarantees the note genuine as to names, date, amount, etc., and that in selling it he conveys a good title to the paper. As business men, however, they are very cautious and are exceedingly anxious that the paper they sell shall be paid, and as a rule they make good any losses which grow out of apparent misrepresentations on their part.

BANKERS' RATES FOR LOANS

In loaning money on demand, when it is strictly understood between bank and borrower that the money so advanced is positively minute money--money returnable at any minute when the bank calls for it--banks usually charge low rates of interest. When interest rates are high bankers prefer to deal in long-time paper. This general rule is reversed when the situation is reversed. Bankers aim also to scatter and locate their maturities so that as the seasons roll around they will not have very large amounts maturing at one time and very small amounts at another. They plan also to be "in funds" at those seasons when there is always a large and profitable demand for money. For instance, in the centres of the cotton-manufacturing interest the banks count on a large demand for money between October and January, when the bulk of the purchases to supply the mills are made. Again, among those who operate and deal in wool there is an active demand for money in the wool-clip in the spring months. The wheat and corn crops are autumn consumers of money. Midwinter and midsummer in the north are usually periods of comparative stagnation in the money market. All these things affect rates, and the successful banker is he who from observation and large experience shows the most skill in timing his money supply.

V. COLLATERALS AND SECURITIES

TWO DISTINCT CLASSES OF SECURITIES