All the wholesale transactions of business and a large part of the retail transactions are completed by the passing of instruments of credit or negotiable paper, as notes, drafts,checks, etc.; a part of the retail trade only is conducted by what is called cash, that is, actual bills and small change. It is the function of banks to deal with these transferable instruments legally called titles.

Banks deal to a very small extent in actual money. The notes, drafts, bills of exchange and bank deposits are representative of the property passing by title in money from the producers to the consumers. A small proportion, perhaps six or eight per cent., of these transactions is conducted by the use of actual bank or legal tender notes.

This trade in instruments of credit amounts to something like fifty billions of dollars yearly. The losses through mercantile failures rarely exceed one hundred millions a year, that is one dollar in every five hundred, or one-fifth of one per cent of the gross amount of busi-ness.

Emergency Currency. Some samples are given here of the emergency currency of 1893, which may be taken as an example of a period of financial stringency. Beginning in August and within a single month a currency famine due to a variety of causes became general. The banks ceased to loan money, many of them fearing "a run." Interest reached 20, 50, and 100 per cent. The banks of one city refused to accept drafts on another. Some hundreds of banks were compelled to close their doors. The country had been doing ninety per cent of its business upon credit instruments - not actual money, and when these instruments were refused a financial panic was the result. Men preferred currency in hand to the best kind of credit account, and as a result the actual money was locked up in private vaults. Currency became so scarce that it had to be bought as merchandise at a heavy premium. Merchants were forced to send by express the actual bills to meet distant accounts and to pay the expenses of their families at the summer resorts. Checks were useless away from the banks upon which they were drawn. More than $300,000,000 was withdrawn from the banks and hoarded by the owners.

Emergency Currency of 1893.

This situation brought into local circulation several forms of currency - credit instruments - which were decidedly unique. The most common of these were the emergency clearing-house certificates, their object being to extend indefinitely the brief term of mutual credit involved in all clearing-house settlements. They were in reality not used as currency, but their effect was to add their face value to the volume of currency in circulation, by releasing for use outside that which would otherwise have been reserved for clearing-house settlements. In each instance the use of the certificates was limited strictly to settlement of mutual accounts between members of the particular clearing-house association issuing the certificate. The certificates were issued to banks upon securities which they furnished. Such certificates were also used during the financial depression of 1907-08.

A Clearing House Certificate.

Other devices of similar character were clearing-house due bills. These stated that a certain sum was due by a particular bank to some other bank or to the order of some individual and usually had the following additional wording: This due bill is only good when signed by one and countersigned by another authorized person and is payable only in the exchanges through the clearing-house the day after issue.

Another expedient favored in all parts of the country, was the sale by banks of certified checks against themselves for currency denominations, which when signed by the purchaser, were used by him as currency. .

Most generally used of all, however, were pay checks in currency denominations, which in scores of manufacturing towns, were the only currency that was available for weekly payments and cash purchases by wage-earners.

In addition to these well-defined classes, there were others so varied that but a suggestion of them can be made - negotiable certificates of deposit;ninety-day and other short time paper in currency denominations; bond certificates;grain purchase notes;credit and corporation store orders; improvement fund orders; teacher's warrants; shingle scrip, etc. In every case where the associated banks of a section failed to supply the needed currency, individuals and corporations were compelled to resort to extraordinary devices. This illegal banknote currency was accepted by the community, the financial conditions became normal again, and every credit instrument was made good in actual money.

Usury and Its Penalty. The laws of some of the states for collecting more than the legal rate of interest are quite severe. National banks which collect more than the legal rate can only be proceeded against under the U. S. Interest Penalty Act, which provides that usury shall be punished by a forfeiture of twice the amount of interest paid, if action is commenced within two years of the time of such usurious practice, and that recovery can be had for the entire amount of interest paid at any time.