commercial towns, great sums of money must, of necessity, pass from one merchant to another. And the time and labor necessary to count out all these large sums of money, and to transport them from one place to another, would be very great. But much of this time and this labor may be saved, by each one's depositing his money in a bank, and by their uniting in employing a banker. And whenever any one of them having money in the bank, wishes to pay another, he may give him an order or check upon the banker for the amount to be paid.

§ 911. But it is obvious, that, if money must be counted out on the presentation of every order or check, a large number of persons must be employed for the purpose; and the expense of making exchanges would still be very great. But the banker may effect the saving of much time and labor, by keeping an account with every person making deposits in the bank. If one of the customers of the bank, has occasion to pay to another one thousand dollars, he may give his creditor an order on the banker for this amount. But the creditor may not want the money for immediate use; he therefore chooses to let it remain in the bank, until he may have occasion for it. In this case, the labor of counting the money, which may consist of many hundred pieces, may be saved, by simply charging one thousand dollars to the drawer of the order, and crediting him to whom it is given with the same amount.

§ 912. Now if we consider that most of the merchants conduct their moneyed transactions with each other through banks, we shall readily perceive the amount of time and labor saved by means of banking to be immense. For it may be that the person, in the case above supposed, to whom the one thousand dollars stands credited, may wish to pay the same, or nearly the same sum, to another creditor of the bank, and this third creditor to a fourth; and in the same manner a thousand dollars may, in effect, be transferred an indefinite number of times from one creditor of the bank to another, by a few moments' labor in writing.

are they useful in the business of exchange? § 911. How may much of the time and labor of counting money be saved? § 912. How often may a certain sum of money in a bank pay a debt without being

§ 913. Banks are useful in remitting payments to distant places. The transportation of large sums in specie from one part of the country to another would be expensive; and it would also expose persons to the danger of robbery. But the expense and risk of thus conveying money through the country, may be avoided by the agency of banks. Con. sider for a moment the vast amount of trade between the large cities on the Atlantic, and the other parts of the United States; and it will at once appear, how convenient banks are to merchants and other persons who are obliged to send money to distant places.

§ 914. But let us see how the operation of transmitting money by means of banks is performed. A merchant in New Orleans, wishing to pay his creditor in New York ten thousand dollars, deposits the 'money in a bank, takes from the cashier a draft for that amount on the cashier of a bank in New York, and sends the draft by mail to his creditor there, who presents the draft, and receives the money; and the cashier charges the amount to the bank in New Orleans. Thus the payment of a large sum is made, without the expense to the debtor of carrying it himself, or the risk of intrusting so much money to strangers to be carried.

§ 915. It may here be asked, how the bank in New Or. leans avoids the expense and risk of sending the money to New York. Now we must remember that, although merchants in New Orleans buy many goods in New York, merchants in the latter place receive large quantities of cotton, sugar, and molasses from the former; and many remittances are to be made from persons in New York through the banks there, to persons in New Orleans. The banks, then, in both places keep accounts with each other, and, at stated times, settle their accounts, when, perhaps, the balance due to either will be very small; and the transportation of but little money will be required.

§ 916. Thus payments may be made from one country

counted? § 913. What is the advantage of remitting payments through the medium of banks? § 914. Describe the manner in which remittances are made through banks? § 915. By what means Is the transportation of money by the banks from place to place saved? § 916. What is the order called, which requests the davment

to another. The orders requesting such payments, are called bills of exchange. A bill of exchange is an order drawn on a person requesting him to pay to some person designated by the drawer. The nature and effect of a bill of exchange we have briefly described in another place. (§ 676.) But as bills of exchange are at present so extensively used in commercial transactions, a more particular description of their use as the representatives of money, properly belongs to this place.

§ 917. We have seen how the moneyed transactions between different parts of the same country may be facilitated by the transmission of orders or drafts, instead of money. The conveniences of this system, in conducting these transactions between persons in different countries, are equally great. For, besides the difficulties that attend the transportation of money from place to place in the same country, its transportation to foreign countries is attended with the additional danger of loss by shipwreck.

§ 918. A, residing in New York, and owing B in London ten thousand dollars, may make a remittance of that amount in this manner: C, also residing in New York, may have ten thousand dollars due him in London, being the avails of produce sent from this country and sold there. A, wishing to avoid the expense and risk of sending the money across the Atlantic, pays ten thousand dollars to C, and takes his order on the banker in London, with whom the money is deposit. ed, for the same amount, to be paid to B.

§ 919. These bills may be made to perform the office of money. A, going from New York to London to buy goods, wants ten thousand dollars. B, also residing in New York, has ten thousand dollars owing to him in London, payable in six months; and, preferring to receive payment at home, he draws an order on his debtor in London, to be paid in six months from date, for which A gives his obligation to B, payable at the same time. A proceeds with his bill of ex change to London, where, the responsibilty of the drawee

of money in another country? § 917. What is the advantage of this mode of making payments to foreign countries as from place to place in the same country? § 918. Show, by example, the manner of ma. king a remittance abroad. § 919. How may a foreign bill of exchange 21*

being known, the bill is received by the London merchant for goods, who again disposes of it in a similar manner; and thus it may continue to pass as money until it becomes due, when it is paid to the holder.

§ 920. Hence, in all commercial places carrying on a foreign trade, bills of exchange are articles of purchase and sale. Being always in demand for the purpose of making remittances abroad, a person having money due in a foreign country, may obtain for a bill of exchange more than the amount for which it is drawn. The demand for bills of exchange in any place, is created by its having bought more in a foreign place than it has sent thither. In such case, bills are wanted to make payments.

§ 921. We sometimes hear it remarked, that exchange is in favor of a certain country. It is said to be so, when less money is given in any country for a bill of exchange, than such bill will produce in the country on which it is drawn. If, therefore, a bill of exchange, drawn in the United States on a person in England for ten thousand dollars, could be sold here for more than that amount, to a person who might be under the necessity of making a remittance to England, exchange would be said to be in favor of that country.

CHAPTER XVII.

Banks for Discounting Bills and Notes, or for Loaning Money.

§ 922. ANOTHER kind of banks are banks of discount, or loan. Banks of this kind are institutions for loaning money. They are called banks of discount, because it is the practice at banks, when money is advanced on bills of exchange and promissory notes, to retain the interest instead of re

be made to circulate as money? § 920. What makes bills of exchange articles of purchase and sale, in a commercial place? § 921. In what case is exchange said to be in favor of any country?

§ 922. What is a bank of discount? Why is it so called? § 923.

ceiving it with the principal when the bill or note becomes due.

§ 923. In discounting a bill or note, the interest on the whole sum to the time of payment, is not deducted. The lender would, in this case, get more interest than he would be entitled to receive. The interest on one thousand dol. lars for six months, at seven per cent., is thirty-five dollars. But a bank would not deduct that amount; because, for thirty-five dollars the borrower ought to have the use of one thousand dollars for six months, whereas he would receive but nine hundred and sixty-five dollars. He ought to have such sum as would in six months amount to one thousand dollars; that sum is nine hundred and sixty-six dollars, and nineteen cents.

§ 924. But it may be inquired, why persons having money to lend, do not attend to the business, each one for himself, instead of associating themselves for the purpose. By uni ting the money of fifty or a hundred persons, and employing the necessary number of persons to transact the business, much time is saved. Neither would have steady employ. ment in lending and collecting his own money. It is cheaper for each to pay his proportion of the expense of hiring one or more persons to loan and collect the money of the whole, and to divide the profits or interest among them.

§ 925. Banks for loaning money are a great convenience to the community. A merchant may wish to purchase a quantity of country produce, but he has not on hand the necessary funds. And if there were no banks, he must find some private individual who lends money; which may cost him not a little time and trouble; and when such individual is found, he may not have the money on hand, or not enough to afford the accommodation desired. But every man knows where to find banks; the merchant therefore goes directly to a bank, which is generally able and ready to serve its customers; he obtains the loan; he makes the intended purchase; and thus he has not only been accom

Is the interest on the full amount of a note deducted from it when it is discounted? Why not? § 924. Why do persons usually associate for banking purposes? § 925, 926. State the general advantage of banks of loan to a community, in the purchase and sale of produce. Why is it better to borrow money in small quantities as it is wanted?