But it is said that checks, notes, drafts, bills of exchange, and the
facilities afforded by clearing-houses effect such economy in the use of
money that it goes farther now than formerly, and that therefore so
large a volume of money as was formerly needed is not needed at present.
It is sought thus to escape the conclusion that the fall of prices is
the result of a shrinkage of the volume of money, or at least to imply
that if the money volume has been shrinking the agencies mentioned have
served to mitigate, if not entirely to counteract, the effects of such
shrinkage. This is in substance to claim that however contracted the
money volume of a country may become, the system of checks and
clearing-houses--on the principle of the compensating balance--will
expand in a proportion directly corresponding to the contraction of the
currency; that the greater the reduction of the volume of money in the
country the greater the increase in the transactions of the
clearing-house.
Nothing more absurd could be conceived. If this view were correct, it
would make no difference whether the amount of money in circulation were
large or small; a million dollars would be as efficacious as
$100,000,000, and even one dollar as effective as a million dollars; and
if we suppose the last dollar to have disappeared from circulation,
then, according to the sweeping and pretentious claims set up for the
clearing-house system, we could dispense altogether with the use of
money and rely exclusively on checks, drafts, and bills of exchange.
That checks and clearing-houses are a great convenience to commerce is
not denied. They serve to a certain extent to make more effective the
money volume of a country. By the clearing house system of off-setting
the demands of the several banks, one against the other, and requiring
payment in cash of the balances only, large amounts of loans may remain
undisturbed and greater stability of industrial conditions be secured.
Clearing-houses, however, were not established primarily for the
convenience of commerce, but for the profit of bankers. Whatever amounts
of money are economized by means of those institutions bring
compensation, by way of interest, to the banks. We may, therefore, rely
upon their being utilized to the utmost under all circumstances.
But, however much checks and clearing-houses may economize the use of
money, they are no novel devices. They are not some untried and
newly-invented instrumentalities. Checks have been in use ever since the
invention of banks. The clearing-house system was established in this
country in 1853. Contributing, as it does contribute, to the pecuniary
profit of the banks by making possible an economy in the use of invested
money, which the banks have loaned out, and on which they are drawing
interest, the system has grown with the growth of the business of the
country. It will undoubtedly continue to grow, but with no greater
acceleration than population and business will warrant.
As it has been a part of the banking machinery of the country for nearly
forty years, and during that period has been utilized to the utmost, the
conditions of its existence and utilization have long since become
static conditions. The demands for currency have borne relation to the
needs of business, with clearing-house facilities in full sight and
operation; and at all seasons, in the adjustment of prices, those
facilities have had full force and effect. Assuming that at any given
period the business of the country were conducted with a given volume of
money, _plus_ a certain volume of clearing house exchanges, then, at a
later period, an increase of business would demand an increase in the
volume of money, _plus_ a proportionate increase in the volume of
clearing-house exchanges; having had this system in full and effective
use for forty years, it is as absurd to ascribe the _fall_ of prices in
the last half of that period to any economy in the use of money
effected by the clearing-house system as it would be to ascribe to the
same cause the directly opposite effect--the _rise_ of prices--that took
place in the first half of the same period.