The Watchman And Southron

"How Money is Loaned to Banks."

The article in the Alliance Column, under the above head, from the National Economist, is not sufficiently explicit. We therefore offer the following additional, using, for convenience for reference, its numbers:

No. 1. That feature has been so recently and so fully discussed in The Observer that it is useless to go over it again.

No. 2. We think that it is a mistake: there is no law to that effect that we can find. We cannot imagine to what it refers.

Under the economical administration of the government by the Democratic party when Cleveland was President the surplus in the treasury at one time reached over a hundred million dollars. This was so much taken from circulation and was contraction to that amount. If we remember correctly, a large portion of this surplus was used by the government for purchasing its own bonds not yet due, the object being to get that much money back in circulation and thus prevent a financial panic, which seemed to be imminent on account of contraction.

The government ought not to be blamed for putting the surplus into circulation. It had to do that or let it lie idle in the treasury. The blame belongs to the Republican party for imposing a robber tariff on the people, which brought into the treasury a hundred millions a year more than was needed. And it still imposes that tariff and more besides under the McKinley Act. The difference between the Democratic administration and the Republican administration is, that the former accumulated a surplus by honesty and economy, while the latter makes it a point to spend the surplus by extravagant legislation, so as to keep up the robber tariff. The Democratic administration was not responsible for the high tariff, and consequently was not responsible for the surplus but having the surplus on hand it made the best disposition of it possible under these circumstances.

Now, the same object might be accomplished, in the case of another accumulation in the treasury, by depositing the surplus with banks on call loan, requiring the banks to deposit bonds as security for its return. It is possible there may be some provision of that sort to prevent an accumulation of money in the vaults and consequent contraction of the currency.

If it is not that, we cannot imagine what it is referred to under head No. 2. The Economist should be more explicit. Or the editors of the Alliance Column may be able to elucidate the subject.

No. 3. There is no cause of complaint here. The general government has banks of deposit, just as States and individuals have, where they put their money for safekeeping, checking it out as they need it. The Treasurer of this State, for instance, does not keep the State's money in his safe, but deposits it in designated banks and draws on it as needed. South Carolina had, prior to the payment of the July interest on our State bonds, about three hundred and fifty thousand dollars on deposit in various banks in this State, upon which deposits the banks pay no interest. It is simply a matter of safety and convenience, and there is nothing wrong about it.

No. 4. Every national bank is required to keep five per cent. of its circulation with the U. S. Treasurer to redeem its mutilated notes and whatever other of its notes may be presented for redemption. We cannot see how it is possible to manipulate this fund in any way that would injure anybody.

No. 5. The postoffice department keeps a bank account from which it pays for the manufacture of stamps and postal cards and for other expenses. This is necessary and proper.

The Economist complains that for this "vast sum" the banks pay the government only $1,264,102.51--only the 1 per cent tax on circulation; and this is to cover the expense of printing and delivering the bills; and that the people who borrow from the banks are meant-pay the banks 8 per cent., amounting to over $16,000,000.

Then the Economist adds that is "a loss to the people and a profit to the banks" of over $14,000,000.

It is a profit to the banks; but it is not a loss to the people--it is simply the interest that borrowers pay for the use of the money they borrow, and is not peculiar to national banks nor to banks of any sort.

Leaving out the Economist's table the $127,410,251, which belongs to the banks and is not a "loan" having been issued to them in exchange for about $49,000,000 worth of bonds, we have $75,411,563 deposited with the banks for safe-keeping not loaned to them. That is what we had the 20th March, 1890 eighteen months ago; but the increased expenditures for pensions, etc, and the redemption of 4 1/2 per cent. bonds have left only $15,500,000 on deposit $10,000,000 of these bonds having been redeemed; $25,000,000 refunded at 2 per cent., and about $17,000,000 yet outstanding.

It is inconsistent to complain that there is not enough money in circulation and at the same time blame the government for depositing its money in banks so that it can get into circulation.

The banks do not-or did not, rather-really pay the government anything for the use of this "vast sum"--more than half of which belonged to the banks and the balance to the government.

We can illustrate and explain this whole matter by reference to any particular bank. Take the bank of Newberry, for instance. It has, under head No. 1. National Bank Currency, $33,750. It has nothing under heads Nos. 2, 3, 4 and 5. The government does not deposit money in it; but the people do for the same reason that the national government and the State government deposit in convenient banks, viz., for safe-keeping and convenience in the transaction of business.

The July report of this bank showed individual deposits subject to check, $196,371.30. Citizens of the town and county have their money there for safe-keeping and convenience, and draw it out, in whole or part, whenever they want it; but while it remains there the bank can lend it and get interest on it. The owners of the deposits do not complain so long as their money is there safe and ready for them whenever they choose to call for it.

Nothing would be saved to the national or State government or to individuals by letting their money lie idle in vaults or safes or old stockings, where it would be more or less exposed to danger from robbers and burglars.

We do not undertake to question the Economist's figures -only to explain them. The people are entitled to all the light they can get on this important subject of national finance. They are studying the subject earnestly and honestly, and they want the truth, the whole truth and nothing but the truth. That we shall give them as far as we know how.-Newberry Observer.