Page:Popular Science Monthly Volume 49.djvu/351

From Wikisource
Jump to: navigation, search
This page needs to be proofread.


ON OUR BANKING SYSTE3I. 333

gregate thousands of dollars in payment therefor ; it gives four months' notes to the railroad company, aggregating thousands of dollars, in payment for the freight to the docks. The coal pro- ducers, to obtain ready money wherewith to run their mines, dis- count the notes obtained from the shipping company in their banks. The railroad company, to obtain ready money wherewith to meet its expenses, discounts the notes obtained from the coal company for freight in its different banks. It is the intention of the coal-shipping company to pay the notes for coal and the notes for freight when the coal which it has shipped is sold, but, finding it easy to issue notes, it buys and ships more coal than it can sell at remunerative prices, or for immediate returns, and when its notes are due it can not pay them all. To retain its credit with the coal producers, it pays the notes given to them, but it then can not pay all the notes given the railroad company. To meet the situation, the railroad company and the coal company exchange notes — that is, for example, suppose there be notes amounting to forty thousand dollars of the coal company to the railroad com- pany coming due, and the coal company can pay but twenty thousand dollars. To meet the other twenty thousand dollars, which may be in two notes of ten thousand dollars each, which have been discounted by the railroad company at the P National and the Q National Banks, the railroad company gives the coal company two notes each for ten thousand dollars, and the coal com- pany gives the railroad company two notes each for ten thousand dollars. One note of the coal company to the railroad company is discounted at the R National and the other R,t the S National Bank, and the treasurer of the railroad company, by that part of the transaction, is in possession of twenty thousand dollars, less the discount, which he badly needs to help pay interest on an over- burden of bonds and bills and long-overdue wages to employees. One note of the railroad company to the coal company is dis- counted at the T National and the other at the U National Bank, and the proceeds, amounting to nearly twenty thousand dollars, in connection with the twenty thousand dollars already in its treasury, enable the coal company to meet the maturing notes to the railroad company for forty thousand dollars. The bank in which they are paid and the P National and Q National Banks at which they have been discounted have their belief in the ability of the coal company to meet its obligations strengthened, because it appears that the coal company is paying its notes. But this is not really so, for only one half of its original notes has been paid, and the notes exchanged, representing a liability of forty thou- sand dollars, leave the amount of discounts in various banks the same as when the original notes of forty thousand dollars of the coal company to the railroad company were discounted.

�� �