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 prac tice 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 re. ceive 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 and 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 oan to a community, in the purchase and sale of produce. Why is it better to borrow money in small quantities as it is wanted?

modated himself, but the farmers around him have profited by the ready sale of their produce.

§ 926. In this manner, the merchant-millers or manufacturers of flour, are furnished with means to purchase their supplies of wheat. It is not to be presumed that they have the ready money to buy all the wheat in the country. Nor can they calculate beforehand, how much will be offered in the market, or how much it will be expedient or safe to purchase. It is therefore better economy to get money in small sums as it may be needed, than to provide a large capital in the beginning, a great part of which may not be wanted, or may remain on hand, for a long time, idle and unproductive. By the accommodations which banks afford, persons may get as much or as little money as they may want from time to time, and on a credit sufficiently long to enable them to refund the same from the sales of their products.

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§ 927. Banks are useful, also, in enabling persons desti. tute of capital to commence business. A young man of enterprise, does not wish to labor always as a clerk or journeyman; and if he can obtain money to set up business" for himself, although he may begin on a small scale, he may, by prudent management, soon repay the capital borrowed, and go on independently and prosperously. Many young men, who would otherwise have remained poor, have been enabled, in this way, to become rich, and to set on foot, and carry into execution important enterprises which have given a stimulus to industry, and contributed much to the prosper. ity of a whole community.

§ 928. Banks bring into active and profitable use, much money which, without such institutions, would be unem. ployed. There are many persons who have no immediate use for the gains of their labor. The surplus earnings of an industrious master mechanic, or even an economical laborer by the day or month, may, in a few years, amount to a considerable sum, which he may put in a bank, where it will yield a sure and steady income to the owner; and, by being loaned to men of enterprise, it increases the productive industry of the country.

§ 927. Show the advantage of banks to persons destitute of capital. wishing to commence business. § 928. State the advantages of banks

§ 929. Thus we have seen the nature, and some of the benefits of banks, as institutions for deposit and exchange, and for loaning money. And we have considered them separately as distinct institutions. But if we consider the business of both these kinds of banking institutions united in the same bank, we shall readily see how much more useful they may be rendered. Hence, at the present day, there are no banks of deposit and exchange, as such; but all banks transacting business of this kind, connect with it the business of loaning money, by discounting bills of exchange and promissory notes. In the next chapter, a more particular notice will be taken of the character and opera. tions of the banking system in this country.

CHAPTER XVIII.

Bunks of Deposit, Discount, and Circulation, and of PaperMoney.

§ 930. THOSE who are in any degree conversant with banks and banking operations, will have perceived from what has been said of banks, that banks in this country differ essentially from those which have been noticed in the two preceding chapters; for here, as is well known, the banks furnish the principal part of the money or circulating medium. They receive money in deposit, and they discount notes, or loan money; but when they discount a note or bill, instead of paying gold and silver coin for such note, they pay in notes of their own, for which they are bound to pay the specie whenever demanded; and these banknotes circulate as money. Hence they are banks of deposit, discount, and circulation; called more frequently,

as depositories of the surplus earnings of laborers. § 929. Is the business of deposit and exchange, and of discounting or loaning, done at present by distinct or separate institutions?

§ 930. In what respect do banks in this country differ from those

perhaps, banks of discount and circulation, or of loan and issue. As banks perform an important part in the economy of this country, it is proper in this place to describe the manner in which these institutions are established and conducted.

§ 931. Banking companies are incorporated by acts of the legislature. The nature of a corporation has been defined in another place. (§ 7.) When a bank is wanted in any place, a number of persons petition the legislature of the state to be incorporated for banking purposes. The act grants and defines the powers of the corporation, and mentions the number of years for which it is to exist, and the amount of capital on which it is to do business.

§ 932. The manner in which the capital of the bank is obtained, is as follows: Suppose the capital of a bank is to be $100,000. This sum is divided into portions or shares, usually of one hundred dollars each. The commissioners named in the act of incorporation, give notice that, at a certain time and place, books will be opened to receive subscriptions to the stock of the bank. Persons wishing to furnish any part of the capital of the bank, attend at the appointed time and place, and subscribe for the number of shares they will respectively take. The owners of these shares are called stockholders, who elect from among them. selves a certain number of directors, usually thirteeen; and these choose from their own number a president. The president and directors choose, (not necessarily from their own number,) a cashier and clerks. The money which is to constitute the capital or stock of the bank being all paid in, the bank is ready to do business.

§ 933. A person who wants to draw money at the bank, draws a note for the amount he wishes to borrow, payable to the bank in two, three, or four months, according to the practice of the bank, which note is signed by himself, and by one or more other persons as sureties, who are usually called endorsers, and who are bound to pay the debt in case of the failure of the borrower. If the note is deemed good,

we have described? § 931. How are bank charters usually obtained? 932. Describe the manner in which the capital of a bank is raised. What are its officers, and how chosen? § 933. How is a note drawn