here now. The school used to just drag along, and nobody seemed interested. We never had a gathering at the school, and nobody thought of visiting the school. We had not had night school but three weeks until we got together right. We papered the house, put in new windows, purchased a new stovepipe, made new steps, and bought the winter's fuel.

"Now we have a live Sunday school, a singing school, prayer meeting once each week, and preaching twice a month. People of all denominations in the district meet and worship

together in perfect unity and harmony, aged people come regularly, and even people from the adjoining county are beginning to come."

What could be more heartening than this record of unselfish achievement-for the teachers' work is all voluntary and without pay? It is an inspiring evidence of the latent good will and of the powers for betterment that lie hidden in the deep springs of democracy.

A

DOCTOR practising in a relatively small town in Ohio had thrust upon him, a few months ago, a responsibility that for a long time vied with the emergency calls of his patients in causing him sleepless nights.

It had fallen to his lot, unexpectedly, to take charge of the estate of a deceased friend. Under the terms of the will, the doctor was left practically free to follow his own method in investing funds, amounting to several thousand dollars, the only source of the widow's current income.

He had had some previous experience with stocks and bonds, but it had been experience of a kind that went no farther than to convince him that there was rather more truth than fiction in the cynical old saying about the average member of his profession being one of the most gullible persons in the world when it comes to the buying of investment securities. It was fortunate, however, that he had learned, even at considerable cost and inconvenience, that investing money is, above all, not a thing to be undertaken at haphazard, and with an eye only to large returns. For otherwise the doctor might, with the very best of intentions, have allowed himself so much freedom of judgment in the solution of his new problem as to endanger the welfare of the lady whose interests were at stake.

He had firmly fixed in his mind at the outset one simple rule that applies invariably in cases like this one, namely:

that there is nothing which can compensate for safety. But if the interest return, or income yield, in this particular case was a secondary consideration, it was nevertheless a highly important one; and the doctor's appreciation of that phase of the problem restrained him from following the other more or less natural impulse, which would have carried him blindly to the opposite extreme, and resulted in getting the widow's money invested in securities possessing unnecessary virtues and, on that account, of wholly inadequate yield. He realized that to follow the latter course would amount to a shirking of responsibility no less than to risk unnecessarily the loss of part or all of the principal for the sake of inordinate returns. So the question that gave him the most concern at first was one which always has worried prudent investors, large and small, and doubtless always will: How to determine the maximum rate of income consistent with sound security - how to discover just where true investment ends and speculation begins.

In the hope that he might be able to find his own way out of this dilemma, the doctor began a systematic study of investment principles. He became very much absorbed in it, and when the WORLD'S WORK first heard about his case he had got far enough along to have reached the conclusion that no hard and fast rule about the relationship between safety of the principal and income could be laid down.

Under the guidance of a local banker he had made a first rate beginning in the discharge of his important trust. A part of the money had been used to buy a couple of local mortgages at 6 per cent. Neither of these mortgages represented much more than half the value of the property pledged as security, and both were given by people with whom the doctor was fairly intimately acquainted, and for whose worth and credit the banker was able to vouch unhesitatingly. Another part had been put into municipal bonds, a type of security which a good many country bankers will recommend to investing customers to the exclusion of nearly everything but mortgages. On

a better time than when prosperity talk was being heard on all sides. He had rightly concluded there was a whole lot of logic in that; and when he wrote to this magazine for advice, there was no end of just such evidence of the time being "out of joint."

Another fundamental which this investor had come across in his studies was that at a time when the great corporations are compelled to bid high for money their bonds are invariably low in price. And in this connection he admitted having been impressed with the significance of the high rates chronicled in the financial columns of his daily paper as having been paid lately for new short-term money

these two divisions of the widow's money an average yield of a little more than 5 per cent. was obtained.

He desired to use still another part of the money to add to the list a few railroad bonds of the best quality. But here a new perplexity had arisen. Such securities were objects of trade to a greater extent than mortgages, or even municipal bonds, and, therefore, it became important to know when was the favorable time to buy. Was there any rule for determining this?

Somewhere the doctor had read that the time of "uncertainty," when financial wiseacres were scratching their heads over the currency, or the crops, or the tariff, or strikes, or Government investigations, was

by corporations of the best credit standing, like the Northern Pacific Railroad, and even by states like New York and Tennessee. But he wanted to know what assurance there was that in all these respects the times would not get worse before they got better that, if he bought bonds now, he would not a little bit later on be regretfully contemplating still lower prices.

It is on account of this evidence of hesitancy on the doctor's part that the story of his experiences has a special timeliness, for it stamps him as typical of perhaps the majority of the folk who have written to this magazine during the last few months for guidance in investing money. The constantly recurring ques

tion has been when to expect the limit of the downward movement of the prices of standard investment bonds. The fact is, it is not given, even to the great masters of investment experience, such as the savings banks and insurance companies, to decide with mathematical certainty.

It is a false notion for any investor, and particularly the "average" individual investor, to expect that, save by good luck, he can obtain unadulterated the cream of investment opportunity. Blind persistence in that notion will be found, in nine cases out of ten, to result in the investor's getting little better than skimmed milk. And it is at just such times as the present, when prices are marked down all along the line, that it is always well to point out this delusion, and suggest that, after all, it doesn't make so much difference to the real investor what may happen in the market place during the next six weeks, six months, or even the next year.

The essential fact is that there are now on all sides a great many discrepancies between market prices and intrinsic values. These discrepancies are found among all types of high grade securities, but nowhere are they more apparent than in the large group of railroad bonds comprising the issues that have long been known as the "standards" of American investments.

A select list made up of Atchison, Topeka & Santa Fé general mortgage 4's, Baltimore & Ohio gold 4's, Chicago, Burlington & Quincy (Denver division) 4's, Chicago, Milwaukee & St. Paul general mortgage 4's, Louisville & Nashville unified 4's, Northern Pacific prior lien 4's, Norfolk & Western consolidated 4's, and Union Pacific first and land grant 4's, practically all bonds of the quality prescribed for public and private trustee investment in New York state, shows, by way of illustration, an extreme fluctuation in yearly average prices of approximately eighty dollars during the last decade. Taking the current prices of individual issues in such a list, they are found to have declined to within a short distance of the levels reached during the panic of six years ago. And it is considered significant by the students of the cycles of price movements that the latest downward swing has been in progress uninterruptedly since 1909, or for a longer period than any similar movement in modern financial history.

The investor who is inclined to hesitate at times like the present will do well to remember that what usually happens after a period of depression is that the best bonds are among the first to reflect in their market prices the turn of the tide of investment.

block collapsed, maiming a number of the workmen. The people of the neighborhood hurriedly carried the poor fellows to the hospital. The superintendent received them so long as he had ordinary beds to put them in, but kept the emergency rooms locked. He then told the people he could not take care of any more patients, and on being reminded by a nurse that the emergency rooms were not in use, he said, "Why, we cannot use those. The law requires us to keep them always ready for an emergency."

This is a season of the year when the moral of Mr. Forgan's story is likely to be brought home forcibly to farmers, merchants, manufacturers, and business men of all classes when they think of our banking system as it was constructed a half century ago to meet exigencies long since passed away.

Under that system it has been not only possible but a common occurrence for a man with good security and a solvent business to be crippled in his operations because he could not get his bank to serve him in the ordinary commercial way.

The principal function of a commercial bank with which the average person is most familiar is that of receiving the deposit of money, not so much for safekeeping as to facilitate changes in its ownership without actually moving the money itself. But the layman often overlooks the important fact that by far the largest part of a bank's deposits originate in quite a different way.

Given a certain amount of deposits in the form of actual money, the banker finds that, although he engages to repay this money on demand, not all the depositors will want their funds at the same time. Experience has taught him that he can. fulfil his obligation for repayment if he keeps in his vaults only a certain proportion of the money entrusted to his care. Therefore, he lends out the balance, just as he lends his own capital, and it is through this operation that a substantial part of his profit is derived. It is this lending operation, also called "discounting." that causes bank deposits to swell to such enormous totals. This is the way in which it works:

Brown is a builder engaged in business in a growing Kansas town. He has important contracts on hand, and finds himself running short of materials. To supply his needs will take $50,000, and it so happens that he can get the most satisfactory terms from a certain firm with which he has never done business before, and which is, therefore, reluctant to extend him credit until the instalments on his contracts fall due in sufficient amounts to enable him to pay for the materials. He finds, moreover, that to settle for the materials at once would so reduce his working capital that he would soon be unable to meet the requirements of the weekly payroll of his workmen. He goes to Jones, who is president of the bank in which he keeps his account, and knows there is no question about his solvency. It is arranged that the bank shall lend Brown the $50,000 on the security of his promise to pay over the amount two months hence with interest at, say, 6 per cent.

Now Brown's note is taken over by the bank as one of its assets, and the bank's books are made to show that the sum, for which the note calls, stands to Brown's credit as if he had actually deposited the money. He now goes ahead with his purchase of materials, and still has an adequate balance at the bank, a part of which he may take out in actual money, leaving a substantial part, however, to draw checks against as he may need money from time to time to pay his bills.

Here we have an illustration of one of the simplest forms of the transactions between banks and their customers, which give rise to nine tenths of the so-called. "deposits" of the banks and trust companies. And it is with such deposits, obviously representing nothing more than what everybody knows as "credit," that 95 per cent. of the business of the country is carried on.

It is necessary to point out here that when a banker creates deposits of this kind, by taking the notes of his borrowing customers, he is obliged to pay out the deposits on demand just as if they were deposits of actual money. Therefore, he must keep in his vaults an amount of

money equal to a certain proportion of such deposits. The money so kept is called the bank's "reserves.' The necessity for maintaining them is, in the final analysis, the only thing that places a limit

a bank's ability to create deposit liabilities in the manner just described.

For banks in the national system, the amounts of these reserves are carefully prescribed by law. Every bank in certain cities of 500,000 or more inhabitants, called "reserve cities," has to keep a reserve equal to 25 per cent. of its deposits. Banks outside the reserve cities have to keep reserves equal to 15 per cent. of their deposits. Though the law allows the banks some latitude in using these reserve moneys, they must always be available to the banks on a moment's notice. The penalty for any bank's persistence in allowing them to remain below the legal limit is the withdrawal of the bank's right to contínue in business.

When, therefore, Brown of Kansas went to Jones, the president of the national bank, to arrange to get his loan of $50,000, Jones's bank must have had at its command, either in its vaults or elsewhere, an amount of "lawful money" sufficient to cover not only 15 per cent. of the deposits then standing on its books to the credit of customers, but also to enable it to put aside enough additional to maintain the legal limit for Brown's $50,000.

But suppose Brown's need for credit at the bank had arisen about the middle of August. His bank is in the heart of the wheat belt. It is easy to imagine the bank president apologizing for his inability to grant the required loan because of the great demand being made upon the resources of his bank by the farmers of the community for actual currency to facilitate the moving of their crops to market. One can almost hear him saying:

"You know, Brown, how much I'd like to accommodate you, but it's impossible this time. Yes, it's quite true, we have several hundred thousand dollars of perfectly good currency in our vaults, but remember we're face to face with our annual money crisis, due to demands for crop moving, and we're so close to our legal reserve limit now that I dread to

contemplate it. contemplate it. We bankers have to scramble hard for reserve money at this time of the year. In this respect, it's every fellow for himself and the devil take the hindmost. You're not the only one in town to suffer. Smith, the department store man, was in yesterday for $50,000. and White, the hardware merchant, wanted $25,000 the day before. Had to refuse 'em both. But there'll be plenty to go round shortly. Come in and see me then.”

Thus do we see the moral of the story about the hospital superintendent and his locked emergency rooms. To complete the picture of Brown's experience, we have only to imagine him under the necessity of stopping work on his contracts for the want of necessary materials to carry them through, throwing his masons, carpenters. plasterers, and all the rest of his workmen out of work, at least temporarily, and possibly being himself confronted with bankruptcy.

Such an anomaly as this the reformers of the currency are trying to obviate in the future. They are trying to make a currency that can expand to take care of Brown and his neighboring business men. even in the crop-moving season, if their business is sound and warrants credit. Under the proposed law the national banks will have put capital in a regional reserve bank which will not deal with the public. One of the important functions of these new banks will be to act as common centres where the reserves of all the banks in their region will be brought together and rendered more useful. The national banks in every region will have the right to ask their reserve bank to rediscount commercial paper such as Brown's note (if it is within the proposed limits of time). To go back to Brown's case. Under the proposed law the bank president would not have been forced to refuse the loan. The bank would simply have endorsed the note and forwarded it to its regional bank. The regional bank would have held it as a part of the Jones bank's reserve.

Again, in the new law, it is proposed to establish a system of what is called "acceptance," now practically unknown among our business practices indeed, a practice that is made a criminal offense under the