9. Collecting country clearing of country checks has not been mentioned so far because it belongs more properly in the discussion of domes tic exchange. The methods employed thruout the country are so generally unsatisfactory, however, and the system used in a few of the cities has proved so excellent, that it may be well to explain briefly how the work is done in one of the cities.
The wastefulness of the collection methods em ployed is strikingly illustrated by Mr. Cannon in his story of the journey of a check drawn on a bank in Sag Harbor, N. Y., and payable to a firm in Hobo ken, N. J. This check, after being deposited in Ho boken, finally reached Sag Harbor after going thru New York, Boston,' Tonawanda, Albany, Port Jef ferson, Far Rockaway, New York (again) , River head and Brooklyn. Under an efficient system the check would have gone straight home thru New York, with a great saving of time, postage, clerical labor and stationery.
A check is booted around the country in this fashion because a bank finds it less troublesome to inclose it with other items sent to some regular correspondent near the drawee bank than to hunt up the proper special correspondent for it alone. The bank saves something by shifting the job to another. This bank, in turn, passes the check along by a chance method until it finally 'reaches home. The amount of funds constantly tied up in transit between banks in the United States is enormous.
10. Boston plan.—The plan of the Boston Clearing House for collecting country checks is the most noteworthy. The department having this work in charge, called the Foreign Department, began business in 1900. Each day, the banks sent in checks on country banks for collection. Those checks were mailed out the same day and, on the morning of the second day following, the amounts were credited to the collecting banks. City banks were thus able to collect funds on country checks with only one more day's delay than was required for city checks. Some exceptions had to be made to this rule in the case of checks drawn on banks located at a considerable dis tance, but the exceptions amounted to only five per cent of the total, and for them only one more day was required.
About 90 per cent of all New England banks were included in the system. Any bank which did not enter saw its checks go to a discount in Boston. The cost of collection averaged about seven cents per thousand dollars. The work of the Foreign Depart
ment has been taken over now by the Federal Reserve Bank of Boston.
In the chapter on the Federal Reserve system there is a discussion of the clearing system which is now be ing operated by the Federal Reserve banks.
11. Significance of clearings.—Bank clearings are properly considered one of the best barometers of trade conditions. Over 95 per cent of the nation's business is done by check. Not all these checks pass thru the clearing houses, and therefore the volume of clearing is not equal to 95 per cent of the total trade; but the percentage of checks cleared to checks drawn may be assumed to be constant. If this is true, an increase in bank clear ings is one of the best indications that business is picking up. On the contrary, a drop in the amount of clearings indicates that business is becoming dull.
The total of the figures must be analyzed before any reliable conclusion can be reached. In the first place, it must be remembered that the price level changes. When the average price of goods goes up, more money and credit is required to carry on even the old number of exchanges. One hundred bushels of wheat bought at $1.80 swells the clearings more than will one hundred bushels bought at $1.10. If clearings increase ten per cent during a period when the level of prices is also rising ten per cent, it is evi dent that we cannot draw the conclusion that the number of exchanges has increased ten per cent. It may not have increased at all.
Another thing necessary, if reliable conclusions are to be drawn, is a study of the figures for separate sections of the country. Clearings at New York are ordinarily over half of the total for the country. A boom in the stock market may swell them several per cent. The remainder of the clearings may not change. Any one who examined only the total figure for all the clearing houses might be misled into the belief that general business thruout the country was on the increase. The following figures for .clearings during the years 1909, 1910 and 1911 will illustrate this point : New York was losing while the remainder of the country was gaining. The total clearings were fall ing off. A number of financial publications record the volume of bank clearings and list them for sepa rate cities. One of the most satisfactory compila tions is found in the Commercial and Financial Chronicle, published in New York.