26. Are higher prices an effective check to the excessive use of forest and mineral products?
27. State versus Federal administration of conservation. (Consult the Debaters Handbook Series.)
CHAPTER XXXI
CREDIT AND BANKING
379. SOME PRELIMINARY DEFINITIONS.—Money may be defined as anything that passes freely from hand to hand as a medium of exchange. Money is of two types: first, coin, including gold, silver, nickel, and copper coins; and second, paper money, including several kinds of certificates and notes. Both types of money, coin and paper, are called "cash." Credit refers to a promise to pay money or its equivalent at a future date. A bank is an institution which makes it its special business to deal in money and credit. A check is a written order directing a bank to pay a certain sum of money to a designated person. A bank note is a piece of paper money or currency which constitutes the bank's promise to pay in coin and on demand without interest, the sum named on the face of the note. A reserve fund is an amount of money or securities which a bank habitually keeps on hand as a partial guarantee that it will be able to meet its obligations.
380. TYPES OF BANKS.—Of the several types of banks, the savings bank is perhaps the most familiar to young people. A savings bank will receive deposits of one dollar or more, and will pay interest on these amounts. But the savings bank does not pay out money on checks drawn against deposits. Indeed, it may require a formal notice of several days before deposits can be withdrawn.
In many states there are trust companies. In addition to performing the function of a commercial bank, trust companies take care of valuable papers, execute trusts and wills, and sometimes guarantee titles to land.
The investment bank is usually a private institution, conducted chiefly in the interests of certain large industrial organizations.
A fourth type of bank is the commercial bank, with which this chapter is chiefly concerned. The commercial bank derives its name from the fact that it deals largely with business men. If classified on the basis of their charters, rather than on the basis of function, commercial banks may be either National, State, or private banks.
381. PRIMARY FUNCTION OF THE COMMERCIAL BANK. [Footnote: Throughout the remainder of this chapter the word "bank" should be taken as referring to the commercial bank.]—The primary function of a commercial bank is to receive the deposits of persons who have saved sums of money for which they have no immediate use, and to make loans to persons who desire them. Of course, those who have deposited sums with a bank may draw on their accounts at any time, either themselves demanding sums of the bank, or directing the bank, by means of checks, to pay specified sums to others. But experience has taught the bank that if it keeps on hand a reserve fund equal to from five to about thirty-five per cent of the sums for which it is liable to depositors, it will ordinarily be able to meet all the demands for cash which depositors will be likely to make upon it. The bank may then loan out to business men the remainder of the money deposited with it. This not only encourages production, but it allows the bank to secure a reward for its services. This reward is in the form of interest paid by those who borrow of the bank.