Although these notes are made legally payable in coin on demand, it is seldom that such payment is demanded, if only it be publicly known that the notes are solvent: that is, if it be publicly known that they are issued by persons who have so much material property, that can be taken by law, and sold, as may be necessary to bring the coin that is needed to pay the notes. In such cases, the notes are preferred to the coin, because they are so much more safe and convenient for handling, counting, and transportation, than is the coin; and also because we can have so many times more of them.
These notes are also a legal tender, to the banks that issue them, in payment of the notes discounted; that is, in payment of the notes given by the borrowers to the banks. And, in the ordinary course of things, all the notes, issued by the banks for circulation, are wanted, and come back to the banks, in payment of the notes discounted; thus saving all necessity for redeeming them with coin, except in rare cases. For meeting these rare cases, the banks find it necessary to keep on hand small amounts of coin; probably not more than one per cent. of the amount of notes in circulation.
As the notes discounted have usually but a short time to run,—say three months on an average,—the bank notes issued for circulation will all come back, on an average, once in three months, and be redeemed by the bankers, by being accepted in payment of the notes discounted.
Then the bank notes will be re-issued, by discounting new notes, and will go into circulation again; to be again brought back, at the end of another three months, and redeemed, by being accepted in payment of the new notes discounted.
In this way the bank notes will be continually re-issued, and redeemed, in the greatest amounts that can be kept in circulation long enough to earn such an amount of interest as will make it an object for the bankers to issue them.
Each of these notes, issued for circulation, if known to be solvent, will always have the same value in the market, as the same nominal amount of coin. And this value is a just one, because the notes are in the nature of a lien, or mortgage, upon so much property of the bankers as is necessary to pay the notes, and as can be taken by law, and sold, and the proceeds applied to their payment.
There is no danger that any more of these notes will be issued than will be wanted for buying and selling property at its true and natural market value, relatively to coin; for as the notes are all made legally payable in coin on demand, if they should ever fall below the value of coin in the market, the holders of them will at once return them to the banks, and demand coin for them; and thus take them out of circulation.
The bankers, therefore, have no motive for issuing more of them than will remain long enough in circulation, to earn so much interest as will make it an object to issue them; the only motive for issuing them being to draw interest on them while they are in circulation.
The bankers readily find how many are wanted for circulation, by the time those issued remain in circulation, before coming back for redemption. If they come back immediately, or very quickly, after being issued, the bankers know that they have over-issued, and that they must therefore pay in coin—to their inconvenience and perhaps loss—notes that would otherwise have remained in circulation long enough to earn so much interest as would have paid for issuing them; and would then have come back to them in payment of notes discounted, instead of coming back on a demand for redemption in coin.
Now, the best of all possible banking capital is real estate. It is the best, because it is visible, immovable, and indestructible. It cannot, like coin, be removed, concealed, or carried out of the country. And its aggregate value, in all civilized countries, is probably a hundred times greater than the amount of coin in circulation. It is therefore capable of furnishing a hundred times as much money as we can have in coin.