Front Page Titles (by Subject) Cases to which the Clearing System is inapplicable. - Money and the Mechanism of Exchange
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Cases to which the Clearing System is inapplicable. - William Stanley Jevons, Money and the Mechanism of Exchange 
Money and the Mechanism of Exchange (New York: D. Appleton and Co. 1876).
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Cases to which the Clearing System is inapplicable.
It will now be sufficiently apparent that, so long as trade is reciprocal, the cheque and clearing system can arrange all exchanges without the use of coin. The values of goods are estimated and expressed in terms of gold, which acts as the common denominator of value, but metallic money ceases to be the medium of exchange. The banking organization effects what I have heard Mr. W. Langton describe, as a restoration of barter. But it happens in some cases that transactions are not reciprocal, and cannot be made to balance. In certain trades there is a permanent set of the goods in one direction. In the Manchester cotton trade, for instance, the manufacturers in purchasing cotton from the Liverpool merchants, pay with cash or short credits. The goods when completed are often shipped again at Liverpool for foreign consignees at long credits, but are not generally purchased by the Liverpool merchants. Consequently, while the Manchester manufacturer owes the Liverpool merchant for the whole cost of the raw material, and for the shipping charges and freight upon the goods sent abroad, there are no equivalent claims of Manchester merchants against Liverpool. The foreign consignees of the goods pay for them by bills upon London. Now if the Manchester manufacturers held their funds in Manchester, and the Liverpool merchants their funds in Liverpool, there would have to be a constant current of money from London to Manchester, and from Manchester to Liverpool, whence it would go abroad to pay for the raw material. This inconvenient state of things is remedied to a certain extent, as we shall see in Chapter XXIII., by making London the head-quarters and clearing house both of home and foreign transactions.
But there is always a liability that claims expressed in metallic money, and actually capable of being demanded in that shape at the option of the owner, will sometimes be pressed. In certain states of trade, or under certain contingent circumstances, the holders of cheques require gold, and bankers who have become accustomed to consider metallic reserves as almost superfluous, find themselves suddenly in a difficult position. Such, as we shall see in Chapter XXIV., is the real cause of the present instability of the English money market.
The Cheque Bank
The Cheque and Clearing System, so far as we have hitherto considered it, is mainly restricted to the arrangement of considerable payments. No one can enjoy its advantages unless he keeps a banking account, and for this purpose he must be able to command a certain sum of money, and must have a sufficiently good position and credit to be entrusted by a banker with a cheque book. The result is that the larger part of the population is entirely outside the banking system, and must either use coin, postage stamps, or post-office orders in making payments.
A very ingenious attempt is now being made to extend the area of banking to the masses by the institution of the Cheque Bank. When preparing materials for this book, I was so much struck by the way in which this new bank seems to be adapted to complete the cheque and clearing system in a downward direction, that I applied to Mr. James Hertz, the able inventor of the scheme, for information upon the subject, and have been enabled to inquire minutely into it.
The weak point of the present ordinary cheque book is, that a person once getting a book full of blank cheques, can fill them up for any amounts, irrespective of the balance against which they are supposed to be drawn. Here is an opening for easy fraud, if cheques were generally received from strangers without inquiry. The Cheque Bank proceeds on the new principle of issuing cheques which can be filled up only to limited amounts, as shown by printed and indelible perforated notices upon the forms. These cheques, too, are only to be had in exchange for the utmost sum for which they can be drawn, which sum is retained as a deposit until each corresponding cheque has been presented. It follows that each cheque, when duly filled up and signed by the owner, is as good as a bank-note issued against a documentary reserve. It is true that cheque books or forms may be lost or purloined, and then fraudulently signed and issued; but, being drawn to order and crossed, these documents are very dangerous to meddle with in a criminal manner, and, in the only instance in which fraud has yet been attempted, swift punishment followed.