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the cashier of the bank discounts it; the money advanced thereon consisting of notes of the bank.

§ 934. Banks may issue bills to a greater amount than their capital stock; the amount is fixed by law, and is once and a half, twice, or even three times the amount of the capital. This renders banking, when prudently managed, a profitable business, as the stockholders receive interest on a much greater amount of money than they have invested. Every six months the profits are divided among the stockholders. The sums thus divided are called dividends.

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§ 935. But if banks may issue their notes, or bills, as they are usually called, to an amount so much greater than the amount of their capital, what guaranty, it may be asked, has the community of the ability of banks to redeem their bills? that is, to pay them when payment is demanded. Whatever may be the amount of the issues of a bank, it must, of course, have in its possession the notes of its customers to an equal amount, and even greater; for it has also the amount of the interest, which it has retained out of the money advanced on such notes. Every well conducted bank, therefore, has the means of ultimately redeeming all its bills, aside from its capital. So that, if the stockholders are honest men, the holders of bills are exposed to little or no loss, and to no other inconvenience than that of being obliged to await the collection by the bank of the notes of its customers.

But it

§ 936. Whenever a bank is unable to pay the specie on all the bills it has issued, it is said to have failed, or to be broken. But this may happen, and yet the bank may be solvent; that is, it may be able to pay all it owes. is not probable that a great proportion of the notes of any bank will be presented for payment at once; and if unusual demands should at any time be made upon it for specie, it may cease to make any farther issues of its notes; and from its daily collections of the notes of its customers which are

which is to be discounted? Who are called endorsers? § 934. To what amount may banks issue their notes or bills? What are dividends? § 935. What guaranty has the community that the bills of banks will be redeemed? § 936. When is a bank said to have failed? Is a failure necessarily an insolvency? Why is a bank generally safe

constantly falling due, together with its capital on hand, it may meet all the demands that, in almost any supposable contingency, may be made upon it.

§ 937. But wherein consist the advantages of papermoney? In the first place, it is more convenient than specie. It is much more easily counted, because a large portion of the amount of the paper-money in circulation is in notes of large denominations. It is also much lighter, and less bulky: several thousand dollars of this kind of money may usually be carried in a man's pocket. And when it is lost or stolen, it may be more easily identified and recovered. Thus we see that it is more convenient as a medium of exchange than gold and silver; and so long as it is convertible into specie, it will in most cases be preferred.

§ 938. Another advantage of the employment of papermoney, is its superior cheapness, as an instrument of exchange. If paper may be substituted for one half or three fourths of the amount of money necessary for the business of the national exchanges, such proportion of the amount of specie formerly used for this purpose, may be applied to some other profitable use; and so much may be said to have been added to the productive capital of the nation.

§ 939. But it is obvious, that some precaution on the part of the government is necessary, to guard the community against losses by fraudulent banking companies. In some states, the property, personal and real, of the stockholders, is pledged for the redemption of the notes of the banks, while in others, the property of the corporation only, as such, can be taken for the debts of the bank. The principal security which the public has against loss by banks of the latter kind, is the honesty of those who manage them, and the power of the proper authority in the state, to take the management into its own hands, and to apply the effects to the payment of the bill-holders, upon due evidence being given that banks are ill conducted.

in issuing bills to a greater amount than its capital? § 937. Why is paper-money more convenient than gold and silver coin? § 938. Why is it cheaper as an instrument of exchange? § 939. What provision is made, in some states, for securing the redemption of bills by the

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§ 940. In the state of New York, a law was enacted in 1830, by which a fund, called a safety fund, is provided, to indemnify the holders of bills against losses by the failure of banks. This fund is raised by collecting from the banks a yearly tax of one half of one per cent. on their capital stock, until such fund shall have amounted to three per cent.; and the law provides, that, whenever this fund shall have become exhausted in the payment of the debts of broken banks, taxation shall again be resorted to in order to replenish it.

§ 941. In 1838, a general banking law was enacted in the same state, which not only secures the holders of bills against loss, but it has in view, at the same time, the additional object of extending the privileges of banking to all who wish to engage in the business. By complying with the provisions of this law, any person or persons may establish a bank, without application to the legislature for a special law granting the privilege.

§ 942. Several benefits are anticipated from this law. The privilege of banking being free to all, more capital will be brought into active employment, and, consequently, the productive industry of the country will be increased. Again, it is presumed, that, there being more money to be loaned, usurers will have less frequent opportunities of extorting oppressive rates of interest from those who are obliged to borrow.

§ 943. At least one half of the capital of a bank established under this law, must consist of state stock, or public debt, that is to say, debt against the state; which is to be purchased, and transferred to the comptroller of the state. The remainder of the capital may consist of bonds and mortgages on real estate, which is to be taken at half of its estimated value, exclusive of the buildings thereon. The public debt must produce, or be made equal to five per cent. a year; and the bonds and mortgages must draw at least six per cent. a year.

banks? 940. How is security provided by the safety fund act of New York? § 941. What are the objects of the general banking law of New York? When was it enacted? § 942. What benefits does this law propose? § 943. How is the capital of these banks

§ 944. The notes to be issued by these banks, are to be furnished in blank by the comptroller, so engraved as to guard against counterfeiting, and countersigned by him or some other person duly authorized. But the comptroller may not furnish any bank with a greater amount of such blank notes or bills than the security pledged in public stock, or in public stock and real estate. The plates on which the bills are printed, are to remain in the custody of the comptroller. And these banks are required to have on hand at least twelve and a half per cent. in specie of the amount of their notes in circulation.

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§ 945. The owners or assignors of the securities pledged, may receive the interest on them, unless default shall be made in the payment of their bills. But if the banks fail

to redeem their bills, the comptroller disposes of the secu rities, and pays the holders of the bills, who are, in such case, entitled to receive for damages fourteen per cent., instead of the legal interest, from the time of the refusal of payment. Thus we perceive, that this law affords security to the community against those losses which are often suf fered from the fraudulent failure of banking companies, which has always been deemed one of the principal disadvantages of banks.

§ 946. There is, however, one disadvantage attending a paper currency, against which no remedy is provided, viz. the fluctuation in the value of the circulating medium. The effect of an abundance and scarcity of money in changing its value, has been noticed. This fluctuation is frequently produced, to a greater or less extent, by sudden withdrawals and over issues of bank paper. This inconvenience, how. ever, is considered unimportant, compared to the advantages of a paper currency. Hence we find, that, in all commercial and prosperous countries, paper-money constitutes the greater portion of the circulating medium. Its value is considered equal to that of gold and silver, as a currency, because the

constituted? § 944. What provision is made for the protection of the community against losses from their failure? § 945. How are holders of bills compensated for damages sustained by the failure of these banks? § 946. What are the disadvantages of banks and a paper currency?

banks are bound to redeem their notes with specie on demand; and it is generally preferred to specie, on account of its convenience.

CHAPTER XIX.

Distribution.-Wages, or the Price paid for Labor.

§ 947. Ir has already been stated, that wealth, or the value of products, is created by the union of capital and labor; and also, that products are, in general, the result of the industry and capital of different persons. The avails of the land of a farmer may be produced by the labor of other men. A master-shoemaker may have all his work performed by journeymen. But the proceeds of the sales of the grain and the shoes, do not all go to the farmer and master mechanic, nor to those who have performed the labor. As neither the capital nor labor alone would have produced any thing, it is evident, that the avails are to be divided among the capitalists and laborers.

§ 948. The division of the profits of the industry and capital employed in production, and the principles by which this division is regulated, are called distribution, or the dis tribution of wealth. Sometimes a laborer lends his industry to a person who has capital only. The price of the labor, in this case, is called wages. Another may loan his capital to one who has industry. The price paid for the use of the capital, when it consists of money, is called interest: when it consists of land, buildings, machinery, &c. it is usually called rent.

§ 949. The price of labor is affected by several circumstances. Labor will be high or low, according to the pro

947. How is wealth created? Among whom are the profits of capital and labor divided? § 948. What do you understand by distribution? What are wages? Interest? Rent? § 949. What effect has the abundance of capital upon labor? What is the effect of a

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