Rural Health and Welfare Part 7

_The multiple standard._-It is proper to mention in connection with units of value a theoretical device for overcoming the necessary fluctuation in all articles of value. This is sometimes called the multiple standard. The plan, in brief, is to appoint a committee of experts, whose record of current prices, in some general market, for a hundred or more staple articles of commerce, shall be compared from week to week, or day to day, in such a way as to indicate how far above or below the average the price of any article may be. If, then, gold is made a legal tender, a comparison of its price with the average of all prices will show how much weight of gold must be given on any day to actually return a value exactly equivalent to what was borrowed sixty days or a year previous, when the ratio of gold to average prices was different. In this way it is supposed that natural fluctuations in gold, silver or any other commodity made legal tender for debt can be fully provided for without loss to either debtor or creditor.

The objections to this ideal standard are the practical difficulty of settling, first, the wide range of commodities to serve as the basis; second, the importance to be given each in adjusting the standard; and third, the nature of the commission under which the work should be done.

In the history of the world, custom has preceded law in devising for welfare; in this, law without experience will have to precede custom. The difficulty which most men would experience in understanding and trusting such a system puts off indefinitely the possibility of a general adoption.

_The currency._-The last essential in perfect freedom of exchange is a satisfactory means of transferring completely and quickly all property right in any article of trade. Exchange of commodity for commodity or service for service is possible to a very limited extent, since the man who wants my horse may have nothing which I want in return, or if he has, the values may be unequal, and one or the other must remain in debt, which means that one of the articles belongs in part to both. In some new countries exchanges are confined to this slow and uncertain method of barter, where n.o.body can buy until he finds a neighbor wanting just what he himself has to sell. Traders in such countries contrive to acc.u.mulate a variety of things needed by all sorts of people, that they may be ready with some kind of exchange to meet particular wants. No community, however, begins to reap the clear advantages of exchange until some universally acceptable medium of exchange is discovered and accepted. The process of developing this medium is essentially the same as that described in establis.h.i.+ng a standard of value; and so the word money naturally represents both the standard of value and the common currency of trade. It is easy, however, to see by further examination that the two functions of money are quite easily separable, and that, while it is difficult to subst.i.tute for the standard of value, a variety of subst.i.tutes can serve as currency.

In speaking of coinage hitherto, the standard of value has been a.s.sumed to be the most important, but in fact a large proportion of our coin serves simply as currency without materially affecting the standard of value.

This is true of all the fractional coins, which are purposely over-valued, and equally true of the silver dollar under existing circ.u.mstances. In fact, the primary use of coin was simply for the purpose of transferring property. In the words of Aristotle, 350 B. C., "Men invented among themselves, by way of exchange, something which they should mutually give and take, and which, being really valuable in itself, might easily be pa.s.sed from hand to hand for purposes of daily life." This coined money supplies the needed means of exchange most readily because it carries its value with it. In all civilized communities, and in many only partially civilized, it is readily exchangeable for any article of commerce. It is also valued in proportion to its weight, so that any bulk in gold or in silver may be easily divided by exchange for smaller coins. With a little painstaking the coins are made identical in value, so that every trader knows what he gives and receives. They are exceedingly durable, resisting almost all the forces of nature with little loss. For this reason they are likely to have an almost universal value, that is to be wanted by everybody, in any place, at any time, and under any circ.u.mstances. These facts are proved by the tendency to h.o.a.rd such coins whenever individuals have a surplus of wealth beyond present wants, or whenever there is risk in using wealth as capital because of distrust of government, of individuals or of future enterprise. A buried treasure is almost sure to be in the form of coins.

Under a system of coinage, inequalities in exchange are easily adjusted, like "the boot" in a horse trade, or the balance between produce carried to the store and the articles carried away. Most of all, coin is used where for any reason there is distrust of the future. Coin, or its equivalent in bullion, is needed in all transactions where credit is wanting. This appears prominent in all lawless communities with a fluctuating population, and may be found in ignorant communities where methods of credit are not established. It is often essential in the settlement of claims between hostile countries, and is the final means of adjusting balances in all foreign trade. Occasionally this need appears in a universal panic, where each man takes his fellow by the throat, saying, "Pay me that thou owest."

_Coin a part of a country's capital._-The coined money of a country thus becomes wealth in store for constant use as a machine of exchange. Its operation is effective when it keeps in constant motion, being itself consumed very slowly in the wear and tear of motion. It is sometimes compared to an endless screw, transmitting motion to everything else with which it comes in contact. Like other machines, it may be either too abundant or too scarce for the best advantage of the country. In either case there is waste. When the coin is idle it is unproductive, but suffers less waste from deterioration than almost any other kind of machine. In case of scarcity the cost of its use is increased under the general law of supply and demand, exactly as the cost of other machinery in use is advanced when many desire to use it. This machine is a prominent part of the capital of a country, greater in some countries than in others. In France the value of coin is estimated to be 3 per cent of the value of all real estate, including buildings. The use of such a machine makes a material part of the annual cost of exchanges. The coin of England, where interest is comparatively low, costs for its use in interest, wear and tear, and re-coinage more than $20,000,000 annually.

An additional cost to individuals is in the extra risk of carrying such wealth, as shown in express charges and special insurance, and still greater expense for safe keeping, and a considerable use of time in counting. These facts have led to many devices for lessening the need of keeping wealth in this form.

_Credit by accounts._-The most obvious method of avoiding the use of coin in exchanges is a current account between individuals having many transactions in trade. A farmer carries his b.u.t.ter, eggs, fruits, grains and live stock, perhaps, to a single dealer in all these articles, and takes in return articles of household use or for any necessity as he requires them, from a spool of thread to a harvester. If both keep accurate accounts, a settlement once in six months satisfies most conveniently all the requirements of perfect trade. Indeed the settlement is needed only that the accounts may be verified. Except for the dangers of waste in unlimited credit and carelessness in expenditure where future wealth is drawn upon, this method of exchange is simple and inexpensive.

In the nature of the case, however, it must be limited, for safety, to trade between people having confidence in each other's honesty of purpose and ability to keep correct accounts. It also requires a mutual expectation of ability on the part of either to meet indebtedness at any future time of settlement.

_Credit by due-bills._-An extension of this credit in well established countries, so as to take in other persons than the two involved in book account, is found in due-bills, notes of hand payable on demand, or more formal securities, any of which may require a final decision in court.

These pa.s.s from hand to hand, often in connection with coin, and under ordinary circ.u.mstances serve their purpose cheaply. In some countries a note of hand, with endors.e.m.e.nt of each user, may make exchanges until it is covered with endors.e.m.e.nts. The danger of waste is considerable from the impossibility of knowing the financial standing and honesty of the various endorsers, and the system is limited, of course, to the range of confidence in such trustworthiness. So easy is it to extend this credit of individuals beyond the range of safety that most governments have found it necessary to protect their citizens against its dangers by limiting or prohibiting its use as currency.

_Credit currency._-So convenient, however, and so economical is the use of credit, that all well established nations have developed systems for the issue of a credit currency founded upon the stability of strong corporations or upon the national credit. Nations themselves have often issued bills of credit in the form of notes, or promises to pay at the national treasury. If these are payable on demand in the coin of the realm, they are said to be redeemable. If the time of payment is uncertain, or indefinitely postponed, they are said to be irredeemable.

Thus we have the many forms of paper money so familiar to everybody and the various practices and speculative theories regarding it, which make a large part of the discussion of financial questions throughout the world.

No one doubts the worthlessness of currency in any form of note, from individual or firm, which cannot be paid when presented. The notes of the government, so long as that government is considered stable, may circulate readily, and even after doubts exist as to the final ability of the government to redeem, they still circulate, perhaps with greater readiness, in the feeling that h.o.a.rding is utter loss and the stopping of trade in the ordinary perishable products of industry will be an enormous disaster. This feeling often leads to the use of a currency without value, like the token money used for change in the absence of legal coins. Though n.o.body is bound to redeem these tokens, everybody takes the risk of loss as less disastrous than no exchange. Paper money issued by corporations is universally considered dangerous to the interests of communities, unless very carefully restricted within distinct and clearly understood limits.

The discussion of such issues will be given in another chapter devoted to banking. The issue of paper money by governments has been a frequent device for enforcing contributions of citizens to extraordinary expenses in war or other disaster. A history of such issues cannot be given within the limits of this book, but is well worth the study of those who seek an understanding of the powers and limitations of government under natural laws, in making a satisfactory currency. A government's stamp upon the piece of paper is so far good, and only so far, as it secures to the receiver of the paper an equivalent value to what he gave for it. If the government itself is unable to give that value, it can never insure the ability or the willingness on the part of any individual to give such value. While millions of dollars in such form may serve as currency without any deterioration, as at the present time, when government promises in all the various forms amount to nearly $1,000,000,000, should any of these, on any day, be refused payment for want of means in government possession, every individual in the land would feel that the value of his possessions in the shape of such notes was made just so far doubtful as the chances of redemption are postponed. All issues of such notes at once become certificates of debt rather than credit, and lose, to greater or less extent, their exchangeable value.

In the extraordinary issue of "greenbacks" during the civil war, the purchasing power of a paper dollar was reduced to less than half, and gradually appreciated in value as the expectation of early redemption increased. The effect of such issues upon government revenues will be treated in its proper connection. As currency, it certainly robs each creditor and holder while depreciating, and as surely robs each debtor while appreciating. As wage earners are universally creditors, according to prevailing customs, they suffer most in a depreciation of money values: i. e., they work for dollars at one value and a week or a month later receive them to expend at a less value. Speculative debtors, on the other hand, always thrive on depreciating currency, paying their debts in what costs less exertion. Under appreciating currency, the creditors gain, be they bankers or workmen.

_Banking._-The peculiar convenience for saving found by experience in the use of each of these methods of settlement in exchange leads to a natural commingling of all. Coins serve some purposes best, and accounts have a limited range; notes of hand are often desirable, and paper money, if safe, is universally convenient. This natural combination has led to a more systematic arrangement for handling various kinds of currency, called banking. The most obvious addition to the machinery of exchange in the system of banking is the possibility of immediate transfer of property right in a bank deposit by check and account, or by a draft in account between banks, or by bills of exchange in more distant transactions. The bank deposit is made up of individual wealth, or t.i.tles to wealth, supposed to be immediately available for use in exchange. It may consist of all the kinds of currency described or conceivable. Checks are orders upon these individual accounts or deposits, and by their means exchanges are made with great ease and little risk between individuals in the same neighborhood or even in distant cities or distant countries. The cost of storing, handling or transferring any form of currency is reduced to a minimum. So far-reaching is this comparatively modern machine of exchange that it is properly a.s.sumed to be the means of settling 90 per cent of all exchanges, domestic and foreign, with almost no use of money in any of its numerous forms. Its importance as a machine of commerce ent.i.tles banking to a more distinct consideration, and chapter XI will be devoted to the subject.

_Deferred settlement._-In certain stages of civilization exchanges involve, not simply present wealth, but prospective acc.u.mulation. A farmer may purchase his farm upon the a.s.surance of crops and stock to be raised in a series of years. In this exchange final settlement is deferred by notes payable at definite future dates, the promise to pay being secured by a deed in trust, a mortgage deed or individual endors.e.m.e.nt. If many individuals are united, a purchase may be made by means of issuing more formal notes called bonds, the property of the company being pledged for the payment of the bonds when due. Sometimes such purchases are made by the issue of stock, establis.h.i.+ng the right of the seller to a certain undivided share in the wealth controlled by the company. In this case the time of final settlement is indefinitely postponed, to be fixed by limits of the charter or by a vote of the stock-holders. All these certificates of indebtedness serve to a limited extent in exchange of property. So far as they enter into commerce, after the first transaction, they are simply articles of purchase and sale, having a more or less established market value. Since they usually represent an acc.u.mulating interest or a provisional dividend, the market value is constantly fluctuating, and they can therefore serve almost no purpose of currency.

The ease with which such notes, bonds and stock can be made the basis of a single purchase in establis.h.i.+ng some enterprise gives to them an indefinite influence in trade, sometimes immensely extending the apparent purchasing power of a community. The advantages and disadvantages of such deferred settlement are so varied and important as to make it worth while to treat the subject more extensively than is proper in this a.n.a.lysis, and such treatment will be found in Chapter XII.

Chapter XI. Banks And Banking.

_Origin of banks._-Attention has been called to the banks of the country as a most important part of the machinery of exchange. It is proper to describe more fully the nature of the machine and its operations. A clear understanding of the character and process of banking on the part of all the people both extends its influence and diminishes its dangers. Banking, like everything else in civilization, has had a natural growth. The different steps in its growth have been devised for the sake of meeting the needs of a growing commerce, and banking can exist only where commercial transactions are frequent and constant.

The word bank, distinctly related to the English word bench, is supposed to have been adopted from the fact that early Jewish dealers in money sat by a bench in the streets of Italian cities. The commercial city of Venice is supposed to have been the seat of the first organization distinctly named a bank. This was a corporation of money lenders who handled their capital in the form of coin by exchanging it for notes of individuals.

This was as early as the twelfth century. Since that time in every civilized community there has been experiment upon methods for quickening exchanges through such organizations, some of which have been of great advantage and some have brought disaster. The modern system of banking is the result of all these centuries of experience, a history of which cannot be given here.

_Bank described._-A brief description of the most modern form of banks under state or national restrictions will help to understand how these inst.i.tutions serve the world of commerce.

In simplest terms, a bank is a company founded for the sole purpose of dealing in coin and current certificates of credit of every form, the prime object being the convenience of people in making exchanges of any kind. Sometimes a bank is called upon simply to make change, or, as we say, to break a valuable coin or a bill of large denomination into smaller pieces. On the border land between two countries the banker serves a traveler by exchanging the coins of the country he leaves for coins of the country he enters.

Often the bank, equipped with safe protection against fire or robbers, receives the wealth of others in any form of money for safe keeping, with provision for its being paid when it is needed, whenever and wherever the owner directs. The same bank may be asked to exchange the money in its possession for notes of individuals payable on demand or at definite future time. It may even issue notes of the firm in place of the individual notes received, acquaintance of a community with the standing of the bank as a dealer in money making its notes circulate where individual notes would not. In this case the wider credit of the bank is exchanged for the limited credit of individuals. In the end a well established bank in close a.s.sociation with a system of banks is expected to do any service that has to do with either money or credit, so long as the credit approximates cash transactions, and has not drifted into overdue debts requiring courts and officials for collection.

So important are all these functions of a bank to the interests of society that distinct provision is needed in the law of the land for establis.h.i.+ng the bank and maintaining its efficiency. The double system of government in our country known as state and national leads to two cla.s.ses of banks, called state or national according as they are organized under authority of state government or under national laws.

_State banks._-The independent laws of any state are supposed to provide such restrictions as the people desire for the management of banks. Any bank chartered by the state government is subject simply to the laws of the state pertaining to banks and is called a state bank, whatever the name under which it does business.

The laws of the different states vary indefinitely, but the essentials of a banking law quite recently established in one of the states may serve to ill.u.s.trate the modern ideals as to safe, legitimate banking. Under this law a bank must be a corporation of not less than five persons who have subscribed for the entire stock and have paid at least 50 per cent of the value of this stock before beginning business, with provision for payment of 10 per cent each month until the whole of the capital stock is paid for in cash. Each stock-holder is individually liable to an amount equal to the value of his stock for any debts of the bank in excess of its original stock. Having settled upon a name distinct from all others, its application is made to a bank commissioner for a charter to do business in banking according to the laws of the state. Under the charter issued by the commissioner, the bank is required to be managed by a board of directors, from five to thirteen in number, which board elects the needed officers and appoints the necessary clerks. It cannot increase its capital except by fully paid stock, and can do no other kind of business, like buying and selling of goods and lands, or managing factories and railroads. It is authorized to receive deposits and make loans at interest not above legal rate, provided it keeps on hand available funds, including bank balances, amounting to 20 per cent of its total deposits, and never loans to one individual or firm more than 15 per cent of the paid up capital of the bank. A penalty of fine and imprisonment follows conviction of any officer for receiving deposits after general insolvency is known.

Each bank is required to report to the commissioner at least quarterly, and whenever called upon to publish its report; while failure to comply with requirements of the commissioner in report or otherwise brings immediate forfeiture of the charter. The commissioner or his deputy must visit each bank at least once a year and whenever occasion may require.

If, upon examination, a bank is found insolvent the commissioner himself takes charge of the business for final settlement of its affairs. These important restrictions and careful inspection are thought necessary to secure the public interests in banking. The state through its bank commissioner gives guaranty to the public of legitimate and safe banking.

The value of that guaranty, of course, depends upon the honesty, experience and executive ability of the bank commissioner, whose term of office and compensation should make him as independent as possible of any weakening influence. Under present arrangements no state banks issue their notes as currency because of a national tax of 10 per cent, which prevents a possible profit from its issue. Present state laws, therefore, make no provision for that function, unless by statutes existing before the organization of national banks. The states still have the const.i.tutional right, apparently, to charter banks of issue, but the advantages of uniformity throughout the nation are so evident as to make such action very improbable.

_National banks._-The so-called national banks organized under authority of United States government have been in existence since 1863, and have proved, so far as currency is concerned, such an improvement upon anything preceding in the way of bank issues, that few have advocated any return to former methods. The system as now existing places the authority of the United States in an officer called the comptroller of the currency. The law requires an a.s.sociation of five or more persons with a definite name and location, having not less than $100,000 capital ($50,000 in small towns) all paid within six months of beginning business. Share-holders are individually responsible for debts of the bank, aside from their stock, to an amount equal to their stock.

In banks having over $5,000,000 capital a surplus of 20 per cent may take the place of this individual responsibility. Not less than one-fourth of the capital stock, usually one-third, is deposited in the United States Treasury in the form of registered bonds of the United States, to be held exclusively for security of circulating notes. These notes are issued to the bank by the comptroller to the amount of not more than 90 per cent of the market value of the bonds deposited. These notes, printed by the government, signed, registered and sealed in the United States Treasury, in denominations from five dollars to one thousand dollars, become money when signed by the officers of the bank whose name they bear. The cost of these notes, together with the cost of restoring when worn out, as well as the expenses of the comptroller's office, are met by a tax of 1 per cent per annum, paid semi-annually, upon the average amount of notes in circulation during the previous six months. Such notes are not a legal tender, but are received at par for all dues to the United States except duties on imports, and for all demands against the United States except interest on the public debt and in redemption of currency. Any other issue of notes is prohibited, and worn out notes are cancelled and burned in the Treasury of the United States, being replaced by new.

The banks in sixteen princ.i.p.al cities are required to hold a reserve equal to 25 per cent of their circulating notes in lawful money of the United States, namely coin or treasury notes, and all other banks must have a reserve equal to 15 per cent of their circulating notes in the same form.

This reserve is held for the redemption of the notes, provision being made for such redemption at the Sub-treasury of the United States in New York city, bank balances and clearing house certificates in the larger cities being counted as part of the reserve. The object of this is to secure ready redemption of any note in all parts of the nation.

The comptroller's office includes expert examiners, and to it each bank must report at least five times a year, with other special reports as called for. Each bank is subject to examination at the pleasure of the comptroller, and in case of failure to redeem bills or comply with the law, the comptroller has power to take possession of the bank and close its business. The usual banking business of any national bank proceeds according to the laws of the state in which it exists, the legal rate of interest of the state being compulsory.

_Advantages and disadvantages of national bank currency._-The advantage of such a uniform system of bank notes is evident. The bills are secure beyond the possibility of doubt as to their final redemption, and therefore circulate freely without reference to the failure of the bank issuing them. In case of failure, all the banks form a ready machinery for collecting the bills for final redemption at the United States treasury.

The frequent reports and expert inspection give as satisfactory means of maintaining safe management as can be secured by law. The possibility of connivance between examiners and bank officers is reduced to a minimum.

At the same time, there are disadvantages from several sources. First, United States bonds do not form a permanent basis. Second, the market value of these bonds and the low rate of interest make the use of capital in the shape of circulating notes less profitable than other capital in the bank. This is especially true in the newer communities where interest is high, and banks so located are likely to surrender their circulating notes at times when money loaning is most profitable, and thus cause a fluctuating volume of currency in the country. Third, the national banks are easily made objects of suspicion as to matters of legislation with reference to money.

_Government banks._-Similar inst.i.tutions under direct management of government officers have often been thought of as bringing the banking machinery within the direct judgment of the people, and so best meeting the wants of the community as a whole. The advantages of unity and publicity in such a system seem evident, and yet in actual practice the safeguards against misuse of power have proved on trial less satisfactory in such methods than in several others. The history of debased coinage already referred to shows that men in power may easily disregard the interests of the people, and under popular government both officers and legal restraints are subject to changes in the interest of localities and parties. It is possible that a stable body of experts might manage such an inst.i.tution under laws as stable as the Const.i.tution with success. But the restraints of law are most effective upon inst.i.tutions outside official circles.

A government bank is subject to extreme pressure from popular demand under any financial distress to issue currency for general improvements in public buildings, parks, etc., which can bring no return and afford no means of redemption. Even the demand of unfortunate debtors for extended loans may push the bank into excessive issues, and finally lead to the scaling of debts and currency together in an effort to escape the results of over-issue.

_Bank business._-Whatever the organization of a bank, its business must be essentially the same. It receives deposits from its customers for safe keeping and for convenience in use by means of checks. A check is simply an order to pay, and, if the receiver is a customer of the bank, amounts to merely a transfer of deposits from one owner to another on the books of the bank. A thousand dollars safely kept in the bank vault may thus change owners a hundred times by means of checks properly recorded. In large transactions the check, because of its economy, takes place of any other form of currency. The bank must also deal in drafts, by which exchanges can be made in different cities, and in bills of exchange, distinguished from ordinary drafts by special reference to foreign trade. It may also hold, as a part of its available machinery, clearing house certificates, which are statements of balances due in the daily settlement between the banks belonging to a clearing house a.s.sociation.

All these form a part of the machinery of every-day exchange, and together with a complete system of book-keeping make the utmost facility in the use of money.

They also greatly economize in the use of money by saving cost of counting and of transfer, and by securing against losses. If the system offered no more advantages than this safe and ready use of good money, the banks would be practically indispensable. But they have a still greater use in a safe extension of credit. The perfection of system in banking makes it possible for one who habitually fulfils his promises to purchase anywhere in the world on the shortest notice with the simple guaranty of credit in the bank where he does business. A traveler wis.h.i.+ng to have funds in safe-keeping, and yet available on a journey around the world, may obtain through a bank familiar with his business standing a letter of credit, upon which he can draw, wherever he may be, against the deposit in his favor, and his draft will be paid, through a series of banks, at the bank near his business connections. Thus the credit of the world is bound together by the banking system grown up to meet the necessities of trade.

_The clearing house._-All forms of credit referred to above, where dealers are customers of a single bank, are easily brought together upon the books of that bank, and will practically cancel each other. The customers of many banks in large cities may have their checks and drafts brought into a single system of book-keeping through a clearing house, which is simply a bank of banks. At a certain hour each day, in the larger cities twice a day, each bank of the city brings to the clearing house all checks and drafts against any other banks. These are quickly sorted, charged to the several banks against which they are drawn, and credited to the banks from which they are brought. The balance of debit and credit is settled then and there, either by transfer of cash, or by issue of a clearing house certificate that a bank has a balance in its favor, and so only a small amount of cash is used in settling all transactions of an immense business. The clearings of a single day reach hundreds of millions of dollars, and form an index of the business prosperity of the country.

The system saves the risk and cost of transferring back and forth immense amounts of coin and currency, and brings the business men of the country into ready contact with each other. It is an essential part of the means of settlement between different cities and different countries. A debt in any part of the world can be paid through a draft on London, which by means of the clearing house and its a.s.sociated banks can be purchased anywhere and paid without delay. Since the purchasing power of any part of the world is chiefly in what it has to sell, the constant motion of checks and drafts in opposite directions will balance each other. If there were no long time credits, the purchases of any city would essentially equal its sales; and so with perfect clearance all trade would be quickly adjusted with but little use of money except for retail business.

_Other clearing systems._-So evident are the advantages of clearing houses in banking that the system extends to many other interests. Railroad corporations balance accounts against each other by exchange of tickets issued by the different roads. Large combinations of dealers in implements or other goods find a similar service available where they can work together with confidence. Express companies sharing in a common service divide the final proceeds upon the same principle. So evident is the advantage that the growth has been rapid during recent years, and seems likely to extend still further.

Some effort has been made to establish farmers' exchanges upon a similar plan, but as yet with little success. The obstacles are chiefly in the want of business confidence in business habits among the farmers themselves. Since the system is strictly a credit system, exact promptness in meeting engagements and constant dealing in the same channels are absolutely necessary. Most farmers, having comparatively few transactions from day to day, are loath to attach themselves as constant customers in any a.s.sociation. With larger experience and more neighborly contact they are finding it possible to work in a.s.sociation for various purposes, and will doubtless enlarge their means of business credit as their progress in mutual understanding increases.

_Government inspection._-The princ.i.p.al support of universal credit through banking is the a.s.surance that uniform methods, honest in principle and accurate in execution, are followed. To secure these results a system of government inspection and guaranty seems absolutely necessary. If the public faith is to be maintained, the ground of that faith must be publicly established. The more complete the examination by trusted officials and the more frequent the publication of official reports, the better the public credit. It seems possible that even individual trustworthiness may become a matter of government record as it is now of private consideration in all business circles. One chief guaranty of credit through the banks is the strict inquiry made by the banks themselves into the business standing of their customers. If the record were perfect, the chief weakness of the credit system would be largely removed.

_The balance of trade._-The bulk of trade between countries, that is of dealers in different countries, is settled in the usual routine of banking as has been indicated; but since under present systems the standards of value are given in different terms in different countries, somewhat more of friction remains in such trade. A greater attention is given to the fact of final settlement in coin or bullion. The price of exchange from a country whose dealers owe more than is due them, under the law of supply and demand, soon arises to an amount sufficient to cover the cost of transporting gold or silver. When these metals are used in payment by transportation from one country to another they are said to indicate the balance of trade; that is, they show that more of other property comes into the country than goes out. This balance of trade is supposed to show the relative prosperity of a nation, and is said to be against it when the nation buys more than it sells.