their own depositors that may be sent in for collection by member banks and other reserve banks. Furthermore, there is the interesting provision that one reserve bank may send as a credit to a second reserve bank remittances drawn against a third reserve bank or its member banks. The object of this provision is to permit three-cornered exchange whereby a given bank liquidates its indebtedness to a second bank by sending a credit payable at a third. The whole system of charges for such clearings is, in general, under the control of the federal reserve board. By implication, however, member banks may not charge their patrons more than the actual expense involved in collecting or remitting funds, or in supplying exchanges. To systematize the clearings between the reserve banks themselves it is provided that the federal reserve board may act as the clearing-house for them or it may designate one of the reserve banks to act in that capacity. The basis of an effective clearing system has thus been provided.

Important provisions remain to be noted in connection with the foreign exchanges and the international movements of gold. Most of the foreign trade of the United States has heretofore been financed by foreign bankers. The new system permits the home institutions to enter the field for this business. As noted above, member banks are allowed, within certain limits, to accept on commission drafts and bills of exchange growing out of exports and imports, and these may be sold in the open market or ultimately re-discounted at the federal reserve banks. National banks with a capital and surplus of $1,000,000 or more may, with the permission of the federal reserve board, establish branches abroad. Similarly, the reserve banks, when duly authorized, may open accounts in foreign countries and may establish agencies for purchasing, selling and collecting bills of exchange bearing at least two names and maturing within ninety days. But the extent to which American bankers will be able to supplant the foreigner will depend, of course, largely upon the acceptability of bills drawn in dollars. This will depend, among other

things, upon the market rate of discount in the United States in competition with the rates abroad. If the new system successfully establishes American credit in the world markets, a large part of the tribute that American commerce now pays to foreign bankers will stay at home.


1-The Money Market, Pratt, S. S., The Work of Wall Street, 174-99.

2-The Bank Statement, Ibid., 200-14.

3-The Credit System, Pender, W. A., Government Credit and Its Uses, 16-34.

4-The Nature and Function of Money, Scott, W. A., Money and Banking, 159-88.

5-The Greenbacks, White, H., Money and Banking, 130-63. 6-The National Bank System, Ibid., 372-84.





The Constitution, Article I, Section 8, says: "Congress shall have power to regulate commerce with foreign nations, and among the several States, and with the Indian tribes." Although this language seems to be perfectly clear, its interpretation has caused much difficulty because the methods and agencies of carrying on commerce are not the same now as when this commerce clause was written. In the following extract Mr. J. S. Wise speaks of the difficulties and summarizes a few of the principles followed by the courts in dealing with them:

This exclusive power of regulating commerce was conferred upon Congress for a reason. It was the offspring of many short-sighted, vexatious, and discriminating regulations imposed by the States upon vessels from other States entering their ports, while they retained the power to legislate on the subject under the Articles of Confederation. The transfer of the subject to exclusive Federal control was made deliberately after these embarrassing experiences. Nearly a hundred years ago the Supreme Court declared that it was doubtful whether any of the evils of weakness under the Articles of Confederation contributed more to the adoption of the Constitution than the conviction that commerce ought to be regulated by Congress.

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No clause of the Federal Constitution has given rise to more litigation than this so-called commerce clause. It was first interpreted by Chief Justice Marshall in Gibbons vs. Ogden, and its scope and legal effect have been under consid

eration in about two hundred and fifty cases since then decided by the Supreme Court of the United States. Many volumes have been written concerning the rights of citizens under this clause, and it would be beyond the scope of this work to set forth even an epitome of the decisions interpreting it rendered by the Supreme Court.

We shall content ourselves with a statement of a few of the leading principles settled by the adjudicated cases, and the remark that the litigation has, for the most part, arisen out of acts of State legislatures, which have been challenged as invading the exclusive province of Congress to regulate interstate commerce, etc.

The first important case arising under this clause was, as above stated, Gibbons vs. Ogden, and the last case of importance decided by the Supreme Court is the celebrated socalled "merger decision," involving the right of Congress, in the exercise of its power to regulate commerce, to pass laws forbidding the merger of corporations owning parallel and competing lines and engaged in interstate commerce.

The master mind of Marshall in the first case announced the following fundamental principles, which remain undisturbed:

1. That the grant of powers to Congress, in the particulars named, was not only absolute and embraced the power to regulate navigation, but was exclusive of any rights of States to legislate on the subject.

2. That it did not affect the right of the States to legislate on purely internal commerce or to enact inspection laws and health laws, or purely police regulations.

3. That the laws last named "form a portion of that immense mass of legislation which embraces everything within the territory of a State, not surrendered to the general government; all which can be most advantageously exercised by the States themselves. Inspection laws, quarantine laws, health laws of every description, as well as laws for regulating the internal commerce of a State, and those which respect turnpike roads, ferries, etc., are component parts of this mass.

No direct general power over these objects is granted to Congress, and consequently they remain subject to State legislation."

4. But where the States, in the exercise of the powers last mentioned, enact laws which come in conflict with Federal laws regulating commerce, the acts of the State must yield to the laws of Congress. That the nullity of all such acts is produced by the declaration that the Constitution is supreme.

Throughout all the multitudinous litigation which has followed arising under this clause the soundness of these principles has never been questioned. If the case has arisen upon a State statute the question has been, Does the State statute directly legislate on the forbidden subject? If so, it is void. Does it, although within the general scope of State power, in its effect regulate interstate commerce, etc.? If so, it must yield to the exclusive power of Congress to control.

If it be a mere regulation of inspection, or health, or exercise of the unquestioned police powers of the State, and its effect on commerce be merely incidental and not determinative, then it is a law within the powers of the State.

If the question has arisen upon a Federal statute, the first inquiry has invariably been, Is the law, fairly construed, a regulation of that class of commerce committed absolutely and exclusively by the Constitution to the regulation of Congress? If so, it is a valid law, for the power to legislate is as broad as the grant of exclusive control.

These questions have arisen in infinite variety and complexity, presenting new aspects in each successive case, and it is impossible to generalize them in this discussion. The opposing views in each case are the result of two theories which have given rise to most of the controversies between Federal and State authority, viz., on the one hand, the theory of broad latitudinarian construction of Federal powers, and, on the other, the theory of strict construction. Pursuing the one or the other of these theories, men of the highest intellect and character have, from the foundation of the government, been arrayed in opposition to each other upon every impor

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