proceeds of their sale; or a man, far-sighted, energetic, and careful, may perceive opportunity for profit if he could obtain the requisite material or the requisite tools or requisite help of other kinds. By having a note discounted, he obtains the requisite help and pays the note when the opportunity has been realized. In these instances, the discount of notes has contributed to the production and distribution of needed commodities. The producers have obtained profit, their employees have obtained wages; railways, vessels, and factories have been used with emolument to their owners and employees, and thousands of people have been placed in possession of food, fuel, and clothing.
But where there is a chance for profit, there also is a chance for loss. Flood may ruin the cotton crop, the markets may become so glutted that neither grain nor coal can be sold except at a greatly depreciated price; the merchant may be stricken in health; even the energetic, careful, and far-sighted man may have miscalculated his opportunity. In such cases, the result of human effort to the value of the notes may not be forthcoming; the assurance fail of performance; the notes can not be met. When representatives of value are based upon the promised result of human effort which does not materialize, they are worthless unless there is an ultimate basis of realized result. This realized result may be the property of signers or indorsers taken by the bank to make the value of the notes good; it may be of the capital or surplus of the bank or property of the stockholders who are liable for double the amount of their holdings; or, in the last resort, the loss falls upon individuals of the public in general.
Concerned, therefore, in the conduct of a bank are the stockholders, who profit by its prosperity and share its losses; the depositors, whose funds are in its custody, and the public in general; and an important phase of the banking problem is presented by three points: First, the necessity for a bank to keep on hand sufficient actual money wherewith to meet checks and drafts upon it that must be paid in actual money; second, the necessity for furthering the exchange of human effort and thereby making as large profits as possible by maintaining as large a line of discount at all times as may be prudent; third, to make no loans except upon adequate security.
When a bank discounts a note, its first consideration, of course, is the probability of the note being paid—that is, it desires to be reasonably sure that the transaction which the note covers will yield enough to cancel it. To this end it is obliged to rely largely upon the reputation for ability and honesty of the drawer and indorser, for it can not enter into the details of every transaction; but a general knowledge of prices and markets is useful, that it may not be overflooded with paper in any particular line of in-
