The Value of Money

by Benjamin M. Anderson

[403] I have greater confidence in this conclusion, since seeing a letter from Mr. Howard Wolfe, who made the investigation of outside clearings and "total transactions" for the American Bankers' Association, to Mr. Osmund Phillips, Editor of the Annalist. Mr. Wolfe writes: "I do not believe that the experience of the New York banks would differ from that of other institutions which now supply [these figures]."

[404] My information on this point comes from Professor O. M. W. Sprague. It is corroborated by an official of the Bankers Trust Company in New York.

[405] Vide Rodney Dean, of the Fifth Avenue Bank, New York, "The Problem of Collecting Transit Items," Journal of the American Bankers' Association, Jan. 1914, p. 537. Boston inaugurated the system in 1890-1900; Kansas City five years later. Since the above was written, I have learned that New York, in recent months, has introduced the new system. This does not affect our argument regarding the figures for 1909.

[406] Since the foregoing was written, my attention has been called by Mr. Osmund Phillips, Financial Editor of the New York Times, and Editor of the Annalist, to indirect ways in which items on out of town banks sent to New York for collection will affect New York clearings. Country correspondent banks to which New York banks send these items for collection, may remit for them in four ways: (1) by sending cash; (2) by sending items on out-of-town banks, which the New York bank will send on to some other correspondent for collection; (3) by draft on the New York bank which has sent the items to be collected; (4) by draft on some other New York bank. In the last case, New York clearings are affected. The first case is not, quantitatively, important. The second and third cases would seem to be the normal types, assuming correspondent relations between New York banks and country banks to be reciprocal, since the New York bank would be disposed, as far as possible, to turn over its collection business to its own depositors among the country banks. Mr. Phillips says, however, that the fourth case is important. To the extent that this is true, our conclusion that out of town collection items do not affect New York clearings must be modified, and it becomes a matter of importance whether these items are large or small. My information, as stated above, is that Chicago exceeds New York City in this.

If, however, the Kansas City and Boston arrangements held in New York, these collection items would be represented twice in New York clearings. The fact that the items do not themselves get into the clearings remains.

Direct information regarding New York clearings is very desirable. Our indirect approach must be considered inconclusive until more detailed figures for New York City are at hand. We need figures covering all types of banks in New York, for a period of, say, a year (to allow for seasonal changes), in which deposits made by one bank in another are separated from other deposits. National banks alone would exaggerate the item of deposits by one bank in another, especially as they are the depositories of the great private banks.

[407] Or, in some cases, taking the place of cash dealings between banks and a local clearing house. On the face of it, it is incredible that balances between cities, or within cities, after the country clearing houses have done their work, should be so great as to account for a very great part of New York clearings. These balances between cities other than New York, and balances within country clearing houses, must be a minor fraction of country clearings, and country clearings are little more than half of New York clearings. Ordinary commerce, as shown in chapter XIII, cannot give rise to great sums in the aggregate, to say nothing of giving rise to great balances.

[408] The whole thing is summed up on p. 25 of the Comptroller's Report for 1892.

[409] Cf. Kemmerer, Money and Credit Instruments, p. 117.

[410] Annalist, July 6, 1914, p. 8. The editor of the Annalist gives me the following information: data for twenty banks, six in New York and fourteen in Chicago, Philadelphia, Boston, and St. Louis, for the week, Aug. 28-Sept. 2, 1916, show that clearings are 71% of "total transactions" in New York, and about 40% in the other cities. These figures are all for national banks, except for one bank in St. Louis.