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 Resources for YOU, the Instructor

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EARTH SCIENCE FIFTEENTH
EDITION
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questions
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 EARTH SCIENCE FIFTEENTH
EDITION

A01_TARB3536_15_SE_FM.indd 1 6/1/17 8:02 PM

A01_TARB3536_15_SE_FM.indd 2 6/1/17 8:02 PM
 TARBUCK LUTGENS Illustrated by TASA

EARTH SCIENCE FIFTEENTH

EDITION

330 Hudson Street, NY NY 10013

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 Executive Editor, Geosciences Courseware: Christian Botting Copyeditor: Kitty Wilson
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Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text or are
listed below.
Page 9: From J. Bronowski, The Common Sense of Science, p. 148. © 1953 Harvard University Press. Page 12: From L. Pasteur, Lecture, University of
Lille (7 December 1854). Page 215: From R.T. Chamberlain, “Some of the Objections to Wegener’s Theory,” In: THEORY OF CONTINENTAL DRIFT: A
SYMPOSIUM, University of Chicago Press, pp. 83-87, 1928. Page 264: W. Mooney, USGS Seismologist. Page 349: From J. Hutton, Theory of Earth, 1700;
From J. Hutton, Transactions of the Royal Society of Edinburgh, 1788. Page 488: From A.J. Herbertson, “Outlines of Physiography,” 1901. Page 566: Sir
Francis Bacon. Page 644: Copernicus, De Revolutionibus, Orbium Coelestium (On the Revolution of the Heavenly Spheres). Page 648: Joseph Louis Lagrange,
Oeuvres de Lagrange, 1867.
Copyright © 2018, 2015, 2012, 2009, 2006, 2003 Pearson Education, Inc. All Rights Reserved. Printed in the United States of America. This publication is
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Library of Congress Cataloging-in-Publication Data

Names: Tarbuck, Edward J., author. | Lutgens, Frederick K., author.

Title: Earth science / Edward J. Tarbuck, Fred K. Lutgens;
illustrated by
Dennis Tasa.
Description: Fifteenth edition. | Hoboken, NJ: Pearson Education, [2017] | Includes index.
Identifiers: LCCN 2017013211 | ISBN 9780134543536 | ISBN 013454353X
Subjects: LCSH: Earth sciences—Textbooks.
Classification: LCC QE26.3.T38 2017 | DDC 550—dc23 LC record
available at https://lccn.loc.gov/2017013211 ISBN-10:   0-134-54353-X
ISBN-13: 978-0-134-54353-6

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 BRIEF CONTENTS

1 Introduction to Earth Science 3

UNIT 1 Earth Materials 30 UNIT 5 The Global Ocean 406

2 Matter and Minerals 31 13 The Ocean Floor 407

3 Rocks: Materials of the Solid Earth 57 14 Ocean Water and Ocean Life 431

15 The Dynamic Ocean 451

UNIT 2 Forces Within 92

4 Plate Tectonics: A Scientific UNIT 6 Earth’s Dynamic Atmosphere 484

Revolution Unfolds 93
16 The Atmosphere: Composition, Structure, and
5 Earthquakes and Earth’s Interior 127 ­Temperature 485

6 Volcanoes and Other Igneous Activity 161 17 Moisture, Clouds, and Precipitation 517

7 Crustal Deformation and 18 Air Pressure and Wind 551

Mountain Building 201
19 Weather Patterns and Severe Storms 577

UNIT 3 Sculpting Earth’s Surface 232

20 World Climates and Global Climate Change 607

8 Weathering, Soil, and Mass Movement 233

UNIT 7 Earth’s Place in the Universe 636
9 Running Water and Groundwater 267
21 Origins of Modern Astronomy 637
10 Glaciers, Deserts, and Wind 307
22 Touring Our Solar System 661

UNIT 4 Deciphering Earth’s History 346 23 Light, Telescopes, and the Sun 693

11 Geologic Time 347

24 Beyond Our Solar System 717

12 Earth’s Evolution Through APPENDIX A Metric and English Units Compared 740
Geologic Time 373 APPENDIX B Relative Humidity and Dew-Point Tables 741
Glossary 742
Index 754

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 Contents

SmartFigures Media xiv Ionic Bonds: Electrons Transferred 38

Digital & Print Resources xvii Covalent Bonds: Electron Sharing 38
Earth Science 15E: Major Changes in this Edition xxi Metallic Bonds: Electrons Free to Move 39

1
EYE ON EARTH 2.1 39
Introduction to 2.4 Properties of Minerals 40
Optical Properties 40
Earth Science 3 Crystal Shape, or Habit 41
Mineral Strength 41
FOCUS ON CONCEPTS 3
Density and Specific Gravity 43
1.1 What Is Earth Science? 4 Other Properties of Minerals 43
Geology 4 EYE ON EARTH 2.2 44
Oceanography 5
Meteorology 5 2.5 Mineral Groups 44
Astronomy 6 Silicate Minerals 44
Earth Science Is Environmental Science 6 Common Light Silicate Minerals 45
Scales of Space and Time in Earth Science 7 Common Dark Silicate Minerals 47
1.2 The Nature of Scientific Inquiry 8 Important Nonsilicate Minerals 48
Hypothesis 10 2.6 Minerals: A Nonrenewable Resource 50
Theory 10 Renewable Versus Nonrenewable Resources 50
Scientific Methods 10 Mineral Resources and Ore Deposits 50
EYE on EARTH 1.1 11
GEOGRAPHICS Gemstones 52
1.3 Early Evolution of Earth 11
The Universe Begins 11 Concepts in Review 53 | Give It Some Thought 54 |
The Solar System Forms 11 Examining the Earth System 55 | Data Analysis 55  
GEOGRAPHICS Solar System: Size and Scale 12

3 Rocks: Materials
The Inner Planets Form 14
The Outer Planets Develop 14
1.4 Earth as a System 14
Earth’s Spheres 14
of the Solid Earth 57
Hydrosphere 15 Focus on Concepts 57
Atmosphere 16 3.1 Earth as a System: The Rock Cycle 58
EYE on EARTH 1.2 17 The Basic Cycle 58
Biosphere 17 Alternative Paths 58
Geosphere 17 3.2 Igneous Rocks: “Formed by Fire” 60
Earth System Science 19 From Magma to Crystalline Rock 60
The Earth System 19 Igneous Compositions 61
1.5 The Face of Earth 21 What Can Igneous Textures Tell Us? 62
Major Features of the Ocean Floor 21 Common Igneous Rocks 64
EYE on EARTH 1.3 24 How Igneous Rocks Form 67
Major Features of the Continents 24 EYE on EARTH 3.1 67
Concepts in Review 26 | Give It Some Thought 28 | 3.3 Sedimentary Rocks: Compacted and Cemented
Examining the Earth System 29 | Data Analysis 29   Sediment 69
Types of Sedimentary Rocks 70
Lithification of Sediment 74
UNIT 1 Earth Materials 30 Features of Sedimentary Rocks 74
3.4 Metamorphic Rocks: New Rock from Old 75

2
What Drives Metamorphism? 76
Matter and Metamorphic Textures 77
Minerals 31 EYE on EARTH 3.2 78
Common Metamorphic Rocks 79
Focus on Concepts 31
2.1 Minerals: Building Blocks of Rocks 32 GEOGRAPHICS Marble 80
Defining a Mineral 32 Other Metamorphic Rocks 82
What Is a Rock? 33 3.5 Resources from Rocks and Minerals 82
2.2 Atoms: Building Blocks of Minerals 34 Metallic Mineral Resources 82
Properties of Protons, Neutrons, and Electrons 34 Nonmetallic Mineral Resources 84
Elements: Defined by Their Number of Protons 34 Energy Resources 85
GEOGRAPHICS Gold 36 EYE on EARTH 3.3 87
2.3 Why Atoms Bond 36 Concepts in Review 88 | Give It Some Thought 90 |
The Octet Rule and Chemical Bonds 36 Examining the Earth System 91 | Data Analysis 91  
vi

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 Contents vii

EYE ON EARTH 5.2 141

UNIT 2 Forces Within 92 Fire 141
Tsunamis 141

4
5.6 Where Do Most Earthquakes Occur? 144
 late Tectonics: A Scientific
P Earthquakes Associated with Plate Boundaries 144
Damaging Earthquakes East of the Rockies 145
Revolution Unfolds 93 5.7 Earthquakes: Predictions, Forecasts, and Mitigation 146
Focus on Concepts 93 Short-Range Predictions 146
Long-Range Forecasts 147
4.1 From Continental Drift to Plate Tectonics 94
4.2 Continental Drift: An Idea Before Its Time 95 GEOGRAPHICS Seismic Risks on the San Andreas Fault System 148
Evidence: The Continental Jigsaw Puzzle 95
Evidence: Fossils Matching Across the Seas 96 Minimizing Earthquake Hazards 150
Evidence: Rock Types and Geologic Features 97 5.8 Earth’s Interior 152
Evidence: Ancient Climates 97 Formation of Earth’s Layered Structure 152
The Great Debate 98 Probing Earth’s Interior: “Seeing” Seismic Waves 152
4.3 The Theory of Plate Tectonics 99 Earth’s Layered Structure 153
Rigid Lithosphere Overlies Weak Asthenosphere 99 Concepts in Review 155 | Give It Some Thought 157 |
Earth’s Major Plates 100 Examining the Earth System 159 | Data Analysis 159  
Plate Movement 100

6
4.4 Divergent Plate Boundaries and Seafloor
Spreading 101  olcanoes and Other
V
Oceanic Ridges and Seafloor Spreading 101
Continental Rifting 102 Igneous Activity 161
4.5 Convergent Plate Boundaries and Subduction 104 Focus ON CONCEPTS 161
Oceanic–Continental Convergence 104
Oceanic–Oceanic Convergence 105 6.1 Mount St. Helens Versus Kilauea 162
Continental–Continental Convergence 106 6.2 The Nature of Volcanic Eruptions 163
4.6 Transform Plate Boundaries 107 Magma: Source Material for Volcanic Eruptions 163
Effusive Versus Explosive Eruptions 164
EYE on EARTH 4.1 109
Effusive Eruptions 164
4.7 How Do Plates and Plate Boundaries Change? 109 How Explosive Eruptions Are Triggered 165
The Breakup of Pangaea 109 6.3 Materials Extruded During an Eruption 166
Plate Tectonics in the Future 110 Lava Flows 166
4.8 Testing the Plate Tectonics Model 111 Gases 168
Evidence: Ocean Drilling 111 Pyroclastic Materials 168
Evidence: Mantle Plumes and Hot Spots 112 6.4 Anatomy of a Volcano 169
Evidence: Paleomagnetism 113 6.5 Shield Volcanoes 170
4.9 How Is Plate Motion Measured? 116 Mauna Loa: Earth’s Largest Shield Volcano 170
Geologic Measurement of Plate Motion 116 Kilauea: Hawaii’s Most Active Volcano 171
EYE on EARTH 4.2 117 6.6 Cinder Cones 172
Measuring Plate Motion from Space 118 Parícutin: Life of a Garden-Variety Cinder Cone 173
4.10 What Drives Plate Motions? 118 6.7 Composite Volcanoes 173
Forces That Drive Plate Motion 118
Models of Plate–Mantle Convection 119 GEOGRAPHICS Kilauea’s East Rift Zone Eruption 174
Concepts in Review 120 | Give It Some Thought 123 | 6.8 Volcanic Hazards 177
Examining the Earth System 124 | Data Analysis 125   Pyroclastic Flow: A Deadly Force of Nature 177
Lahars: Mudflows on Active and Inactive Cones 178

5
Other Volcanic Hazards 179
E arthquakes and EYE ON EARTH 6.1 180

Earth’s Interior 127 6.9 Other Volcanic Landforms 180

Calderas 180
Focus ON CONCEPTS 127 Fissure Eruptions and Basalt Plateaus 182
5.1 What Is an Earthquake? 128 Volcanic Necks 183
Discovering the Causes of Earthquakes 128 6.10 Intrusive Igneous Activity 184
Aftershocks and Foreshocks 130 Nature of Intrusive Bodies 184
Faults and Large Earthquakes 130 Tabular Intrusive Bodies: Dikes and Sills 184
Fault Rupture and Propagation 131 Massive Intrusive Bodies: Batholiths, Stocks,
and Laccoliths 186
EYE ON EARTH 5.1 132
EYE ON EARTH 6.2 188
5.2 Seismology: The Study of Earthquake Waves 132
Instruments That Record Earthquakes 132 6.11 Partial Melting and the Origin of Magma 188
Seismic Waves 133 Partial Melting 188
5.3 Locating the Source of an Earthquake 134 Generating Magma from Solid Rock 188
5.4 Determining the Size of an Earthquake 136 6.12 Plate Tectonics and Volcanism 190
Intensity Scales 136 Volcanism at Divergent Plate Boundaries 190
Magnitude Scales 136 Volcanism at Convergent Plate Boundaries 191
5.5 Earthquake Destruction 139 Intraplate Volcanism 191
Destruction from Seismic Vibrations 139 Concepts in Review 195 | Give It Some Thought 197 |
Landslides and Ground Subsidence 140 Examining the Earth System 199 | Data Analysis 199  

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 viii Contents

7  rustal Deformation and

C 8.5 Describing and Classifying Soils 247
The Soil Profile 247
Mountain Building 201 Classifying Soils 248
EYE on EARTH 8.2 249
Focus ON CONCEPTS 201 8.6 Soil Erosion: Losing a Vital Resource 250
7.1 Crustal Deformation 202 Erosion by Water and Wind 250
What Causes Rocks to Deform? 202 Rates of Erosion 250
Types of Deformation 203 Controlling Soil Erosion 251
Factors That Affect How Rocks Deform 204 8.7 Mass Movement on Slopes: The Work of Gravity 252
7.2 Folds: Rock Structures Formed by Ductile Deformation 205 Landslides as Geologic Hazards 252
Anticlines and Synclines 205 The Role of Mass Movement in Landscape Development 252
Domes and Basins 206 Slopes Change Through Time 252
Monoclines 208 Controls and Triggers of Mass Movement 252
EYE ON EARTH 7.1 209
7.3 Faults and Joints: Rock Structures Formed by Brittle Deformation 209 GEOGRAPHICS Landslides as Natural Disasters 253
Dip-Slip Faults 209 8.8 Types of Mass Movement 256
Strike-Slip Faults 212 Classifying Mass Movements 256
Joints 212 EYE on EARTH 8.3 257
7.4 Mountain Building 214
Rapid Forms of Mass Movement 257
7.5 Subduction and Mountain Building 215
Slow Forms of Mass Movement 259
Island Arc–Type Mountain Building 215
Andean-Type Mountain Building 215 Concepts in Review 260 | Give It Some Thought 263 |
Sierra Nevada, Coast Ranges, and Great Valley 216 Examining the Earth System 264 | Data Analysis 265  
7.6 Collisional Mountain Belts 217

9
Cordilleran-Type Mountain Building 217
Alpine-Type Mountain Building: Continental Collisions 219 R
 unning Water and
The Himalayas 219
The Appalachians 221 Groundwater 267
EYE ON EARTH 7.2 221 Focus ON CONCEPTS 267
7.7 Vertical Motions of the Crust 223 9.1 Earth as a System: The Hydrologic Cycle 268
The Principle of Isostasy 223 Earth’s Water 268
Water’s Paths 268
GEOGRAPHICS The Laramide Rockies 224 Storage in Glaciers 268
How High Is Too High? 227 Water Balance 269
Concepts in Review 227 | Give It Some Thought 229 | 9.2 Running Water 269
Drainage Basins 269
Examining the Earth System 231 | Data Analysis 231  
River Systems 270
Drainage Patterns 271
9.3 Streamflow Characteristics 272
Factors Affecting Flow Velocity 272
UNIT 3 Sculpting Earth’s Surface 232 Changes from Upstream to Downstream 273
9.4 The Work of Running Water 274

8
Stream Erosion 274
 eathering, Soil, and Mass
W Transportation of Sediment 275
EYE ON EARTH 9.1 276
Movement 233 Deposition of Sediment 277
Focus ON CONCEPTS 233 9.5 Stream Channels 277
Bedrock Channels 277
8.1 Earth’s External Processes 234 Alluvial Channels 277
8.2 Weathering 235 9.6 Shaping Stream Valleys 280
Mechanical Weathering 235 Base Level and Stream Erosion 280
Valley Deepening 280
GEOGRAPHICS Some Everyday Examples of Weathering 236 Valley Widening 281
Changing Base Level and Incised Meanders 281
GEOGRAPHICS The Old Man of the Mountain 238 9.7 Depositional Landforms 282
Deltas 282
Chemical Weathering 239
Natural Levees 284
EYE on EARTH 8.1 240
EYE ON EARTH 9.2 284
Differential Weathering 241
Alluvial Fans 285
8.3 Soil: An Indispensable Resource 243
9.8 Floods and Flood Control 285
An Interface in the Earth System 243
Causes of Floods 285
What Is Soil? 243
Flood Control 285
Soil Texture and Structure 244
8.4 Controls of Soil Formation 244 GEOGRAPHICS Flash Floods 286
Parent Material 244
Climate 245 9.9 Groundwater: Water Beneath the Surface 288
Time 245 The Importance of Groundwater 288
Plants and Animals 245 Geologic Importance of Groundwater 288
Topography 246 Distribution of Groundwater 288

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 Contents ix

Storage and Movement of Groundwater 289

Groundwater Movement 290
9.10 Wells, Artesian Systems, and Springs 291
UNIT 4 Deciphering Earth’s
Wells and Artesian Systems 291 History 346
Springs 292

11 G
 eologic
EYE ON EARTH 9.3 293
9.11 Environmental Problems Related to Groundwater 294
Treating Groundwater as a Nonrenewable Resource 294 Time 347
Land Subsidence Caused by Groundwater Withdrawal 295
Groundwater Contamination 296 Focus ON CONCEPTS 347
9.12 The Geologic Work of Groundwater 297 11.1 A Brief History of Geology 348
Caverns 297 Catastrophism 348
Karst Topography 298 The Birth of Modern Geology 348
Concepts in Review 300 | Give It Some Thought 303 | Geology Today 349
Examining the Earth System 304 | Data Analysis 305   11.2 Creating a Time Scale: Relative Dating Principles 349
The Importance of a Time Scale 349
Numerical and Relative Dates 350

10  laciers, Deserts, and

G Principle of Superposition 350
Principle of Original Horizontality 350
Wind 307 Principle of Lateral Continuity 351
Principle of Cross-Cutting Relationships 351
Focus ON CONCEPTS 307 Principle of Inclusions 351
10.1 Glaciers and the Earth System 308 EYE ON EARTH 11.1 352
Glaciers: A Part of Two Basic Cycles 308 Unconformities 352
Valley (Alpine) Glaciers 308 Applying Relative Dating Principles 354
Ice Sheets 309 EYE ON EARTH 11.2 355
GEOGRAPHICS Antartica Fact File 310 11.3 Fossils: Evidence of Past Life 356
Types of Fossils 356
Other Types of Glaciers 312
10.2 How Glaciers Move 313 GEOGRAPHICS How is paleontonlogy different from archaeology? 357
Observing and Measuring Movement 313
Budget of a Glacier: Accumulation Versus Wastage 314 Conditions Favoring Preservation 358
11.4 Correlation of Rock Layers 358
EYE ON EARTH 10.1 315
Correlation Within Limited Areas 358
10.3 Glacial Erosion 316 Fossils and Correlation 360
How Glaciers Erode 317 11.5 Numerical Dating with Nuclear Decay 361
Landforms Created by Glacial Erosion 317 Reviewing Basic Atomic Structure 361
10.4 Glacial Deposits 320 Changes to Atomic Nuclei 361
Types of Glacial Drift 320 Radiometric Dating 362
Moraines, Outwash Plains, and Kettles 321 Half-Life 362
Drumlins, Eskers, and Kames 323 Using Unstable Isotopes 363
10.5 Other Effects of Ice Age Glaciers 324 Dating with Carbon-14 363
Crustal Subsidence and Rebound 324 11.6 Determining Numerical Dates for Sedimentary Strata 364
Sea-Level Changes 324 EYE ON EARTH 11.3 365
Changing Rivers 325
Ice Dams Create Proglacial Lakes 325 11.7 The Geologic Time Scale 365
Pluvial Lakes 325 Structure of the Time Scale 366
10.6 The Ice Age 326 Precambrian Time 367
Extent of Ice Age Glaciation 326 Terminology and the Geologic Time Scale 367
Causes of Ice Ages 327 Concepts in Review 368 | Give It Some Thought 369 |
Plate Tectonics 327 Examining the Earth System 370 | Data Analysis 371  
Variations in Earth’s Orbit 328

12 E arth’s Evolution Through

Other Factors 329
10.7 Deserts 330
Distribution and Causes of Dry Lands 330
Geologic Processes in Arid Climates 331
Geologic Time 373
10.8 Basin and Range: The Evolution of a Mountainous Focus ON CONCEPTS 373
Desert Landscape 332 12.1 What Makes Earth Habitable? 374
EYE ON EARTH 10.2 334 The Right Planet 374
10.9 Wind Erosion 335 The Right Location 375
Deflation, Blowouts, and Desert Pavement 335 The Right Time 375
Wind Abrasion 336 Viewing Earth’s History 375
10.10 Wind Deposits 337 12.2 Birth of a Planet 377
Loess 337 From the Big Bang to Heavy Elements 377
Sand Dunes 337 From Planetesimals to Protoplanets 377
EYE ON EARTH 10.3 337 Earth’s Early Evolution 377
12.3 Origin and Evolution of the Atmosphere and Oceans 379
Types of Sand Dunes 339 Earth’s Primitive Atmosphere 379
Concepts in Review 340 | Give It Some Thought 343 | Oxygen in the Atmosphere 380
Examining the Earth System 344 | Data Analysis 345   Evolution of Earth’s Oceans 380

A01_TARB3536_15_SE_FM.indd 9 6/1/17 8:02 PM

 x Contents

14 O
 cean Water and
12.4 Precambrian History: The Formation of Earth’s Continents 381
Earth’s First Continents 382
The Making of North America 384
Supercontinents of the Precambrian 384
Ocean Life 431
EYE on Earth 12.1 385 Focus ON CONCEPTS 431
12.5 Geologic History of the Phanerozoic: The Formation of 14.1 Composition of Seawater 432
Earth’s Modern Continents 386 Salinity 432
Paleozoic History 386 Sources of Sea Salts 432
Mesozoic History 387 Processes Affecting Seawater Salinity 433
Cenozoic History 388 Recent Increase in Ocean Acidity 434
12.6 Earth’s First Life 389 14.2 Variations in Temperature and Density
Origin of Life 389 with Depth 435
Earth’s First Life: Prokaryotes 391 Temperature Variations 435
Evolution of Eukaryotes 391 Density Variations 435
12.7 Paleozoic Era: Life Explodes 392 Ocean Layering 436
Early Paleozoic Life-Forms 392 EYE ON EARTH 14.1 436
Mid-Paleozoic Life 392 14.3 The Diversity of Ocean Life 437
Vertebrates Move to Land 393 Classification of Marine Organisms 437
Reptiles: The First True Terrestrial Vertebrates 394 Marine Life Zones 439
The Great Permian Extinction 394
EYE ON EARTH 14.2 440
EYE on Earth 12.2 394
14.4 Ocean Productivity 441
12.8 Mesozoic Era: Dinosaurs Dominate the Land 396 Productivity in Polar Oceans 441
Gymnosperms: The Dominant Mesozoic Trees 396
Reptiles Take Over the Land, Sea, and Sky 396 GEOGRAPHICS Deep-Sea Hydrpthermal Vents 442
Demise of the Dinosaurs 397
12.9 Cenozoic Era: Mammals Diversify 399 Productivity in Tropical Oceans 444
From Dinosaurs to Mammals 399 Productivity in Midlatitude Oceans 444
Mammal Groups 400 14.5 Oceanic Feeding Relationships 445
Humans: Mammals with Large Brains and Bipedal Locomotion 400 Trophic Levels 445
Large Mammals and Extinction 401 Transfer Efficiency 445
Food Chains and Food Webs 445
Concepts in Review 402 | Give It Some Thought 404 |
Examining the Earth System 405 | Data Analysis 405   Concepts in Review 447 | Give It Some Thought 448 |
Examining the Earth System 449 | Data Analysis 449  

UNIT 5 The Global Ocean 406

13 T he Ocean
Floor 407
15  The Dynamic
Ocean 451
Focus ON CONCEPTS 452
Focus ON CONCEPTS 407
15.1 The Ocean’s Surface Circulation 452
13.1 The Vast World Ocean 408 The Pattern of Surface-Ocean Currents 452
Geography of the Oceans 408 15.2 Upwelling and Deep-Ocean Circulation 455
Comparing the Oceans to the Continents 409 Coastal Upwelling 455
13.2 An Emerging Picture of the Ocean Floor 409 Deep-Ocean Circulation 455
Mapping the Seafloor 409 15.3 The Shoreline: A Dynamic Interface 457
Provinces of the Ocean Floor 412 The Coastal Zone 457
13.3 Continental Margins 414 Coastal Features and Terminology 457
Passive Continental Margins 414 Beaches 458
EYE ON EARTH 13.1 415 15.4 Ocean Waves 459
Active Continental Margins 416 Wave Characteristics 459
13.4 Features of Deep-Ocean Basins 417 EYE ON EARTH 15.1 460
Deep-Ocean Trenches 417 Circular Orbital Motion 460
Abyssal Plains 418 Waves in the Surf Zone 460
Volcanic Structures on the Ocean Floor 418 15.5 The Work of Waves 461
13.5 The Oceanic Ridge System 419 Wave Erosion 461
Anatomy of the Oceanic Ridge System 419 Sand Movement on the Beach 462
15.6 Shoreline Features 464
GEOGRAPHICS Explaining coral Atolls: Darwins Hypothesis 420 Erosional Features 464
Why Is the Oceanic Ridge Elevated? 422 Depositional Features 465
13.6 Seafloor Sediments 422 The Evolving Shore 466
Types of Seafloor Sediments 423 15.7 Contrasting America’s Coasts 467
Seafloor Sediment—A Storehouse of Climate Data 424 Coastal Classification 467
13.7 Resources from the Seafloor 424
Energy Resources 424 GEOGRAPHICS A Brief Tour of America’s Coasts 468
Other Resources 425 Atlantic and Gulf Coasts 470
Concepts in Review 426 | Give It Some Thought 428 | Pacific Coast 470
Examining the Earth System 429 | Data Analysis 429   EYE ON EARTH 15.2 472

A01_TARB3536_15_SE_FM.indd 10 6/1/17 8:02 PM

 Contents xi

17  oisture, Clouds, and

M
15.8 Stabilizing the Shore 472
Hard Stabilization 472
Alternatives to Hard Stabilization
EYE ON EARTH 15.3 475
474 Precipitation 517
15.9 Tides 476 Focus ON CONCEPTS 517
Causes of Tides 476 17.1 Water’s Changes of State 518
Monthly Tidal Cycle 477 Ice, Liquid Water, and Water Vapor 518
Tidal Patterns 477 Latent Heat 518
Tidal Currents 478 17.2 Humidity: Water Vapor in the Air 520
Concepts in Review 479 | Give It Some Thought 481 | Saturation 520
Mixing Ratio 520
Examining the Earth System 482 | Data Analysis 483  
Relative Humidity 521
Dew-Point Temperature 522
How Is Humidity Measured? 523
17.3 Adiabatic Temperature Changes and Cloud Formation 524
Adiabatic Temperature Changes 524
UNIT 6 Earth’s Dynamic Adiabatic Cooling and Condensation 524
Atmosphere 484 17.4 Processes That Lift Air 525
Orographic Lifting 525

16 
Frontal Lifting 526
The Atmosphere: Composition, Convergence 526
Localized Convective Lifting 527
­Structure, and Temperature 485 17.5 The Critical Weathermaker: Atmospheric Stability 527
Types of Stability 528
Focus ON CONCEPTS 485
EYE ON EARTH 17.1 530
16.1 Focus on the Atmosphere 486
Stability and Daily Weather 531
Weather in the United States 486
17.6 Condensation and Cloud Formation 531
Weather and Climate 486
Condensation Nuclei and Cloud Formation 531
EYE on EARTH 16.1 487 Cloud Classification 531
16.2 Composition of the Atmosphere 488 17.7 Types of Fog 535
Major Components 488 Fogs Caused by Cooling 535
Carbon Dioxide 488 Evaporation Fogs 536
Variable Components 489 17.8 How Precipitation Forms 537
Ozone Depletion: A Global Issue 490 EYE ON EARTH 17.2 537
16.3 Vertical Structure of the Atmosphere 491
Precipitation from Cold Clouds: The Bergeron Process 538
Pressure Changes 491
Precipitation from Warm Clouds: The Collision–Coalescence Process 539
Temperature Changes 491
17.9 Forms of Precipitation 539
16.4 Earth–Sun Relationships 493
Rain, Drizzle, and Mist 539
Earth’s Motions 493
Snow 540
What Causes the Seasons? 493
Sleet and Freezing Rain (Glaze) 540
Earth’s Orientation 494
Hail 540
Solstices and Equinoxes 495
Rime 542
EYE on EARTH 16.2 497 17.10 Measuring Precipitation 543
16.5 Energy, Heat, and Temperature 497 Measuring Snowfall 543
Mechanism of Heat Transfer: Conduction 498 Precipitation Measurement by Weather Radar 543
Mechanism of Heat Transfer: Convection 498
EYE on EARTH 16.3 498 GEOGRAPHICS Our Water Supply 544
Mechanism of Heat Transfer: Radiation 499 Concepts in Review 545 | Give It Some Thought 548 |
16.6 Heating the Atmosphere 500
Examining the Earth System 549 | Data Analysis 549  
What Happens to Incoming Solar
Radiation? 500

18
Reflection and Scattering 501
Absorption 501 A
 ir Pressure
Heating the Atmosphere: The Greenhouse
Effect 502 and Wind 551
16.7 For the Record: Air Temperature Data 503
Focus ON CONCEPTS 551
16.8 Why Temperatures Vary: The Controls of
Temperature 504 18.1 Understanding Air Pressure 552
Land and Water 504 Visualizing Air Pressure 552
Altitude 506 Measuring Air Pressure 553
Geographic Position 506 18.2 Factors Affecting Wind 554
Cloud Cover and Albedo 506 Pressure Gradient Force 554
EYE on EARTH 16.4 508
Coriolis Effect 556
Friction with Earth’s Surface 556
16.9 World Distribution of Temperature 508 18.3 Highs and Lows 558
Concepts in Review 510 | Give It Some Thought 513 | Cyclonic and Anticyclonic Winds 558
Examining the Earth System 514 | Data Analysis 515   Weather Generalizations About Highs and Lows 558

A01_TARB3536_15_SE_FM.indd 11 6/1/17 8:02 PM

 xii Contents

20  orld Climates and

W
18.4 General Circulation of the Atmosphere 560
Circulation on a Nonrotating Earth 560
Idealized Global Circulation 561 Global Climate Change 607
EYE ON EARTH 18.1 561
Focus ON CONCEPTS 607
Influence of Continents 562
The Westerlies 563 20.1 The Climate System 608
18.5 Local Winds 563 20.2 World Climates 609
Land and Sea Breezes 563 EYE on EARTH 20.1 609
Mountain and Valley Breezes 564 Climate Classification 609
Chinook and Santa Ana Winds 564 The Köppen Classification 610
18.6 Measuring Wind 565 20.3 Humid Tropical (A) Climates 612
EYE ON EARTH 18.2 566 The Wet Tropics 612
18.7 El Niño, La Niña, and the Southern Tropical Wet and Dry 614
Oscillation 567 20.4 Dry (B) Climates 615
Global Impact of El Niño 567 Low-Latitude Deserts and Steppes 615
Global Impact of La Niña 567 Middle-Latitude Deserts and Steppes 615
Southern Oscillation 569 20.5 Humid Middle-Latitude Climates (C and D Climates) 616
18.8 Global Distribution of Precipitation 569 Humid Middle-Latitude Climates with Mild Winters (C Climates) 616
The Influence of Pressure and Wind Belts 569 Humid Middle-Latitude Climates with Severe Winters (D Climates) 618
Other Factors 569 20.6 Polar (E) Climates 619
EYE ON EARTH 18.3 570 20.7 Highland Climates 620
20.8 Human Impact on Global Climate 621
Concepts in Review 571 | Give It Some Thought 573 | Rising co2 Levels 622
Examining the Earth System 574 | Data Analysis 575   EYE on EARTH 20.2 622
The Atmosphere’s Response 623
The Role of Trace Gases 624

19  eather Patterns and

W How Aerosols Influence Climate 624
20.9 Climate-Feedback Mechanisms 626
Severe Storms 577 Types of Feedback Mechanisms 626
Computer Models of Climate: Important yet Imperfect Tools 626
Focus ON CONCEPTS 577 20.10 Some Possible Consequences of Global Warming 627
19.1 Air Masses 578 Sea-Level Rise 627
What Is an Air Mass? 578 The Changing Arctic 629
Source Regions 579 The Potential for “Surprises” 630
Weather Associated with Air Masses 579 Concepts in Review 631 | Give It Some Thought 633 |
EYE ON EARTH 19.1 581 Examining the Earth System 634 | Data Analysis 635  
19.2 Fronts 581
Warm Fronts 582
Cold Fronts 582
Stationary Fronts and Occluded Fronts 583
19.3 Midlatitude Cyclones 584 UNIT 7 Earth’s Place in the
Idealized Weather of a Midlatitude Universe 636
Cyclone 585

21
The Role of Airflow Aloft 587
EYE ON EARTH 19.2 587  rigins of Modern
O
19.4 Thunderstorms 588
What’s in a Name? 588
Astronomy 637
Thunderstorm Occurrence 588 Focus ON CONCEPTS 637
Stages of Thunderstorm Development 589 21.1 Ancient Astronomy 638
19.5 Tornadoes 590 The Golden Age of Astronomy 638
Tornado Development and Occurrence 591 Ptolemy’s Model of the Universe 640
Tornado Climatology 592 21.2 The Birth of Modern Astronomy 641
Tornado Destruction and Loss Nicolaus Copernicus 642
of Life 593 Tycho Brahe 642
EYE ON EARTH 19.3 594 Johannes Kepler 643
Tornado Forecasting 594 Galileo Galilei 644
19.6 Hurricanes 595 Sir Isaac Newton 646
Profile of a Hurricane 596 21.3 Patterns in the Night Sky 647
Hurricane Formation and Decay 598 Constellations 647
Hurricane Destruction 598 The Celestial Sphere 647
Monitoring Hurricanes 600
Concepts in Review 601 | Give It Some Thought 603 | GEOGRAPHICS Orion the Hunter 648
Examining the Earth System 604 | Data Analysis 605   Measurements Using the Celestial Sphere 650

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 Contents xiii

21.4 The Motions of Earth 651 Eye on the Universe 23.1 701
Earth’s Rotation: Spinning on Its Axis 651 23.4 Radio- and Space-Based Astronomy 702
Earth’s Orbit Around the Sun 652 Radio Telescopes: Observing the Invisible 702
Other Motions of Earth 653 Orbiting Observatories: Detecting All Forms
21.5 Motions of the Earth–Moon System 653 of Light 703
Lunar Motions 653
Phases of the Moon 653 GEOGRAPHICS Hubble Space Telescope 704
21.6 Eclipses of the Sun and Moon 655
The Hubble Space Telescope and Beyond 706
Concepts in Review 656 | Give It Some Thought 658 | 23.5 Our Star: The Sun 707
Examining the Earth System 659 | Data Analysis 659   The Sun’s Surface 707
The Sun’s Atmosphere 707

22 T ouring Our The Sun’s Interior 708

The Source of Solar Energy 708
Solar System 661 23.6 The Active Sun 709
Sunspots 709
Focus ON CONCEPTS 661 Prominences 710
22.1 Our Solar System: An Overview 662 Solar Flares and Coronal Mass Ejections 711
Nebular Theory: Formation of the Solar System 663 Concepts in Review 712 | Give It Some Thought 714 |
The Planets: Internal Structures and Atmospheres 664 Examining the Earth System 714 | Data Analysis 715  
Planetary Impacts 666
22.2 Earth’s Moon: A Chip Off the Old Block 667

24 B
 eyond Our
How Did the Moon Form? 668
The Lunar Surface 668
Eye on the Universe 22.1 668 Solar System 717
22.3 Terrestrial Planets 670
Mercury: The Innermost Planet 670 Focus ON CONCEPTS 717
Venus: The Veiled Planet 671 24.1 Classifying Stars 718
Mars: The Red Planet 672 Stellar Luminosity 718
Stellar Color and Temperature 719
GEOGRAPHICS Mars Exploration 674 Hertzsprung–Russell Diagrams
(H-R Diagrams) 719
22.4 Jovian Planets 677
24.2 Stellar Evolution 721
Jupiter: Lord of the Heavens 677
Stellar Birth 721
Saturn: The Elegant Planet 679
Protostar Stage 722
Uranus and Neptune: Twins 681
Main-Sequence Stage 722
Eye on the Universe 22.2 681 Red Giant Stage 722
22.5 Small Solar System Bodies 683 Burnout and Death 723
Asteroids: Leftover Planetesimals 683 24.3 Stellar Remnants 725
Comets: Dirty Snowballs 684 White Dwarfs 725
Meteors, Meteoroids, and Meteorites 685 Neutron Stars 725
Dwarf Planets 687 Black Holes 726
Concepts in Review 688 | Give It Some Thought 690 | Eye on the Universe 24.1 727
Examining the Earth System 691 | Data Analysis 691   24.4 Galaxies and Galaxy Clusters 727

23
GEOGRAPHICS The Milky Way 728
L ight, Telescopes, and Types of Galaxies 730
the Sun 693 Galaxy Clusters 731
Galactic Collisions 732
Focus ON CONCEPTS 693 24.5 The Universe 732
23.1 Light: Messenger from Space 694 How Large Is It? 732
Nature of Light 694 A Brief History of the Universe 733
Why Study Light? 694 Evidence for an Expanding Universe 734
23.2 What Can We Learn from Light? 695 Predictions of the Big Bang Theory 735
Three Types of Spectra 695 What Is the Fate of the Universe? 735
What Does Light Tell Us About Composition? 696 Concepts in Review 737 | Give It Some Thought 738 |
What Does Light Tell Us About Temperature? 696 Examining the Earth System 739 | Data Analysis 739  
What Does Light Tell Us About the Motion of
Distant Objects? 697
23.3 Collecting Light Using Optical Telescopes 698 Appendix A Metric and English Units Compared 740
Refracting Telescopes 698 Appendix B Relative Humidity and Dew-Point Tables 741
Reflecting Telescopes 698
Why Build Large Optical Telescopes? 699 Glossary 742
Advances in Light Collection 700 Index 754

A01_TARB3536_15_SE_FM.indd 13 6/1/17 8:02 PM

 SmartFigure Media

Use your mobile device and a free Quick Response (QR) code reader app to scan a SmartFigure identified by a Condor Video
QR code, and a video or animation illustrating the SmartFigure’s concept launches immediately. No slow websites Continental Rifting
https://goo.gl/RXv8qH
or hard-to-remember logins required. These mobile media transform textbooks into convenient digital platforms,
breathe life into your learning experience, and help you grasp challenging Earth Science concepts.

Chapter 1 Chapter 5
1.2 MOBILE FIELD TRIP: A Geologist’s Grand Canyon (p. 5) 5.4 TUTORIAL: Faults Cause Earthquakes (p. 130)
1.6 TUTORIAL: Geologic Time (p. 8) 5.8 ANIMATION: Seismographs (p. 132)
1.9 TUTORIAL: The Nebular Theory (p. 13) 5.9 TUTORIAL: P and S Waves (p. 133)
1.11 VIDEO: Planets and Moons: Earthrise the 45th Anniversary (p. 15) 5.11 ANIMATION: Seismic Wave Motion (p. 134)
1.16 TUTORIAL: Earth’s Layers (p. 18) 5.16 TUTORIAL: Intensity vs. Magnitude (p. 137)
1.21 TUTORIAL: Shields, Platforms, and Mountain Belts (p. 25) 5.25 TUTORIAL: Liquefaction (p. 141)
5.26 TUTORIAL: Tsunamis (p. 142)
Chapter 2 5.27 ANIMATION: Tsunami (p. 142)
2.3 TUTORIAL: Minerals vs. rocks (p. 33)
2.12 TUTORIAL: Mineral Color (p. 40) Chapter 6
2.13 VIDEO: Mineral Streak (p. 40) 6.5 VIDEO: Eruption Columns (p. 165)
2.15 TUTORIAL: Mineral Habit (p. 41) 6.11 TUTORIAL: Anatomy of a Volcano (p. 170)
2.16 TUTORIAL: Mineral Hardness (p. 42) 6.12 MOBILE FIELD TRIP: Kilauea Volcano (p. 171)
2.17 ANIMATION: Types of Cleavage (p. 42) 6.13 ANIMATION: Volcano Types (p. 171)
2.18 TUTORIAL: Mineral Cleavage (p. 43) 6.14 MOBILE FIELD TRIP: S.P. Crater (p. 172)
2.21 VIDEO: Calcite Reacting with a Weak Acid (p. 44) 6.15 CONDOR VIDEO: Cinder Cones and Basaltic Lava Flows (p. 173)
2.24 TUTORIAL: Silicate Minerals (p. 46) 6.22 ANIMATION: Formation of a Caldera (p. 181)
6.23 TUTORIAL: Yellowstone Caldera (p. 182)
Chapter 3 6.26 TUTORIAL: Shiprock (p. 184)
3.1 TUTORIAL: The Rock Cycle (p. 59) 6.27 ANIMATION: Intrusive Igneous Activity (p. 185)
3.4 TUTORIAL: Igneous Composition (p. 62) 6.28 MOBILE FIELD TRIP: Dikes and Sills in the Sinbad Country (p. 185)
3.5 TUTORIAL: Igneous Textures (p. 63) 6.29 CONDOR VIDEO: Intrusive Igneous Bodies (p. 186)
3.8 TUTORIAL: Classification of Igneous Rocks (p. 65) 6.37 TUTORIAL: The Cascade Range (p. 192)
3.9 MOBILE FIELD TRIP: Yosemite: Granite and Glaciers (p. 66) 6.38 TUTORIAL: Plate Tectonics & Volcanoes (p. 194)
3.15 MOBILE FIELD TRIP: The Sedimentary Rocks of Capitol Reef National Park (p. 69) 6.39 TUTORIAL: Hot Spots & Flood Basalts (p. 194)
3.21 TUTORIAL: Bonneville Salt Flats (p. 73)
3.22 TUTORIAL: Coal (p. 73) Chapter 7
3.26 ANIMATION: Foliation of Metamorphic Rock (p. 75) 7.1 TUTORIAL: Brittle vs. Ductile (p. 202)
3.28 TUTORIAL: Confining Pressure & Differential Stress (p. 77) 7.6 CONDOR VIDEO: Anticlines and Synclines (p. 206)
3.29 ANIMATION: Foliation (p. 78) 7.7 TUTORIAL: Folds (p. 206)
3.32 MOBILE FIELD TRIP: Metamorphic Rocks in the Adirondacks, New York (p. 82) 7.8 MOBILE FIELD TRIP: Sheep Mountain Anticline (p. 207)
3.37 TUTORIAL: Oil Traps (p. 86) 7.9 TUTORIAL: Domes & Basins (p. 207)
7.12 CONDOR VIDEO: Monoclines of the Colorado Plateau (p. 208)
Chapter 4 7.13 CONDOR VIDEO: Faults Versus Joints (p. 209)
4.2 TUTORIAL: Pangaea (p. 95) 7.14 ANIMATION: Faults (p. 210)
4.9 TUTORIAL: Crust vs. Lithosphere (p. 99) 7.16 TUTORIAL: Faults (p. 210)
4.12 MOBILE FIELD TRIP: Fire and Ice Land (p. 102) 7.17 MOBILE FIELD TRIP: Death Valley (p. 211)
4.13 TUTORIAL: Divergent Boundaries (p. 103) 7.18 ANIMATION: Reverse Faults (p. 211)
4.14 CONDOR VIDEO: Continental Rifting (p. 103) 7.19 ANIMATION: Thrust Faults (p. 212)
4.15 TUTORIAL: Convergent Boundaries (p. 105) 7.27 TUTORIAL: Terrane Accretion (p. 218)
4.18 ANIMATION: Continental-Continental Convergence (p. 106) 7.28 ANIMATION: Terrane Formation (p. 219)
4.19 TUTORIAL: Transform Boundaries (p. 107) 7.29 ANIMATION: Himalayas (p. 220)
4.21 MOBILE FIELD TRIP: The San Andreas Fault (p. 108) 7.30 TUTORIAL: Himalayas (p. 220)
4.29 TUTORIAL: Magnetic Reversals (p. 115) 7.31 TUTORIAL: Appalachians (p. 222)
4.31 ANIMATION: Magnetic Reversals (p. 116) 7.32 MOBILE FIELD TRIP: The Folded Rocks of Massanutten Mountain (p. 223)

xiv

A01_TARB3536_15_SE_FM.indd 14 6/1/17 8:02 PM

 Another Random Document on
Scribd Without Any Related Topics
without a premium, may go on indefinitely; especially as credit-money in the form
of bank bills, such paper may serve as a medium in many exchanges; but
ultimately, and before the entire series of transactions is closed, such bank bills are
to be redeemed in coin, or taken in by the banker in payment of some debt due to
him, in both which cases they are extinguished as an instrument of Credit.
The Bank of England keeps out in circulation on the average £25,000,000 in bank
bills. It has been computed, that the average length of life of a Bank of England
bill between its issue and redemption is about three days; and no bill once
redeemed or received back over the counters of the Bank is ever issued again. It
is then placed on file for record only. The joint-stock and private banks of England
and Wales circulate on the average rather more than £4,000,000 of bank bills of
their own; and no bank bill of any kind is legal in England and Wales of a less
denomination than £5. The ten Scotch banks and their branches keep out in bills
about £5,000,000; six out of the nine Irish banks and their branches issue on the
average not far from £10,000,000; but both the Scotch and Irish banks are
allowed to put out £1 bills.
Bank bills, as a form of paper credit not on interest, but ostensibly redeemable in
coin on demand of the holder, have been issued in the United States by more
parties and to a larger extent and with more recklessness as to redemption than in
any other country. Omitting all reference to Colonial issues, and confining the
outlook to the first century under the Constitution, let us note, that when the
present national government went into operation in 1789, the "Bank of North
America" in Philadelphia and the "Bank of New York" in New York and the "Bank of
Massachusetts" in Boston had been opened for business, and all three were State
banks issuing bills convertible into coin, though each confined its business mostly
to the city in which it was located. Two years later under the auspices of Alexander
Hamilton, then Secretary of the Treasury, the first "United States Bank" went into
operation at Philadelphia under a charter from Congress that was to run twenty
years with a capital stock of $10,000,000. At first no bills were issued by this bank
of a less denomination than $10; the money was popular and was converted on
demand; the Bank was prosperous, and paid dividends to stockholders never
falling below 8% and frequently rising to 10% annually; as the time approached
for the charter to expire, the stockholders were anxious for a renewal of their
privileges; but the opposition to them in Congress was now strong, owing mainly
to the increase in the number of State banks from 3 to 88; and accordingly the
recharter was defeated in the House by one vote, and in the Senate also, by the
casting vote of the Vice-President, and the Bank was obliged to wind up its affairs
in 1811.
Then came in a sort of mania for the creation of new State banks, under the hope
that these, now there was no National Bank, might obtain the Custody and
temporary use of the national funds, and especially might furnish the country with
paper money in the shape of State bank bills. The number of banks went up to
246 in 1816. So many bank bills were put out, and became so much distrusted,
and so many were presented for redemption, that the banks could not respond in
coin, and in the fall of 1814, there was a general stoppage of specie payment in all
the banks of the Country excepting those in New England. General resumption of
specie payment by the banks did not take place till 1819. New York bank bills went
down to 90%, those of Philadelphia to 82%, those of Baltimore to 80%, and those
of Pittsburg to 75%.
Under these circumstances the Second Bank of the United States went into
operation in January, 1817, also with a charter to run twenty years, with a capital
stock of $35,000,000, of which the national Government subscribed one-fifth. The
new Bank helped indeed the State banks to resume specie payments, as was a
part of the purpose, but it pushed its own bills into circulation with such
eagerness, that it is thought $100,000,000 of them were in the hands of the
people, before the first year was out. In this way the Bank fell into difficulties. Its
bills were distrusted. Coin came to bear a premium over them of 10%. President
Jackson began his famous contest with the Bank seven years before its charter
was to expire, and took care that it went out of being the same year that he went
out of office, in 1837, namely.
The next year the State banks increased in number to 675, and continued to
increase till 1862, when there were over 1500 of them, and when the issue of the
"Greenbacks" by the national Government interfered with what had been their
exclusive issuing of the paper money after 1837. In 1857, before the commercial
panic of that year, the aggregate of their bills stood at $214,000,000, the largest it
ever reached. These bills were nominally convertible into coin at the will of the
holders, but they were never actually so convertible for any great length of time.
The ratio of their volume to the specie reserved to redeem it was always a very
high ratio. For instance, the average for the whole country in January, 1863, was
4:1; in Rhode Island 12:1; and in Vermont 28:1. Such a paper money can be
called convertible only by a stretch of courtesy.
It was wisely determined by the People to abandon this loose form of paper
money, and in 1863 went into operation the present national banking system,
under which originally $300,000,000 of bank bills were authorized to be issued in
the aggregate, but this limit was extended in 1870 to $354,000,000, and the Act
of 1875 removed all restrictions on the total amount, while there have always been
restrictions on the amount that can be issued by any one bank in the system. By
the law of 1882, national banks may withdraw their bills by depositing lawful
money in the Treasury to take them up, and then take back the proportionate
amount of the bonds held for the security of the bills. There were outstanding
Dec. 26, 1883, $341,320,256 of these national bank bills, but their volume
declined under the law of 1882 to $151,702,809 on Oct. 4, 1888. These bills were
from the first redeemable in greenbacks, which were themselves, however,
irredeemable in gold and silver till New Year's, 1879, since which time till the
present all the paper money of the United States of both kinds has been
convertible into coin at the will of the holder.
d. Bank Deposits. We are studying in order the forms of commercial Credits, and
we have now come to that one which is central in the operations of Banking, and
accordingly this is the place for us to understand clearly what a Bank is, who a
Banker is, and what are the motives actuating at once the Banker and his
Customers. A Bank is an institution for the Creation, Management, and Extinction of
Credits. Money of any kind plays a very subordinate part in the general operations
of banks, which live and move and have their being in the sphere of pure Credits.
Bankers are buyers and sellers of credits. As merchants are dealers in
commodities, so bankers are dealers in credits, buying (1) some credits with other
credits, (2) some credits with money, and (3) money also with credits. Before
unfolding these three operations of bankers in their motives and profits, a glance
backward to the origin of banks would be a help to us in grasping their nature and
benefits.
The word "bank" meant originally a mass or pile or ridge of earth, as we still say, a
sand-bank, and the banks of a river. When first applied to commercial transactions,
the word had a different meaning from what it has at present, although the idea
of credit has inhered in it from the first: in 1171, the Republic of Venice, being at
war, ordered a forced loan from its citizens, and promised to pay interest on it at
5%; and certificates were issued for the sums paid in, and public commissioners
were appointed to manage the payment of the interest and the transfers of the
certificates, which were made negotiable. The Italian word applied to such a public
loan is monte, but as the Germans were then strong in Italy, the German
equivalent word, bank, came to be used alongside of it and instead of it. It meant
this common contribution of the citizens to the wants of the State, represented by
the mass of the certificates, and came to be applied also to the place where the
commissioners paid the interest and transferred the shares. Two other such loans
were contracted there afterwards, and an English writer, in 1646, quoted by
Macleod, speaks of the "three bankes of Venice," meaning these three public
debts, including the evidences of them and the place where they were managed.
The Bank of England also was in its origin in 1694 an incorporation of those
persons willing to subscribe to a public loan in time of stress, as "The Governer
and Company of the Bank of England." The subscribers to a loan of £1,200,000
became an association, or bank, on the condition that the Government should pay
interest to the lenders at 8% annually, and also £4000 a year in addition for the
management of the bank, that is, of this debt of £1,200,000 which was the sole
capital stock of the new Company, which was authorized to issue an equivalent
amount of bank bills to circulate as money. The capital stock was of no use, so far
as redeeming these bills was concerned, the stockholders must furnish other
money for that purpose besides what they have loaned to the State, but the
ownership of so much of the public debt divided among the shareholders, made
the Bank respectable, and tended to give public credit to its bills, which at first
were paid promptly in coin on demand, and thus the Bank, by increasing the
volume of money and by showing confidence in the stability of the State,
strengthened the revolutionary position of William and Mary, and consequently the
Whigs were the friends and the Jacobites the enemies of the Bank. This function
of issuing bills or promissory notes designed to circulate as money, thus begun and
still continued by the Bank of England, is much less important in modern banking
than the other two functions of receiving Deposits and making Discounts, but it
was the function on which the turn began to be made from the older to the newer
modes of Banking. All that is needful to be said on this tertiary or money-issuing
function of Banks has been already urged under the last head.
The two Banks of the United States in succession, as they were more or less
modelled after the Bank of England, gave the same prominence to the function of
issuing paper money, under the belief that government bonds afford the best
security for the redemption of bank bills, an idea that underlies our present system
of National Banks also; and, moreover, those two great banks began to teach the
people of the United States something of the mysteries of Deposit-banking, the
point that we have now in hand. One-fifth of the capital stock of the first Bank,
$2,000,000 out of $10,000,000, was subscribed by the national Government; and
besides, the proceeds of the national taxes as they were paid in were passed over
to the Bank as Deposits, that is to say, the Bank bought this money of the
Government, paying for it with a Credit; and then properly used the money as its
own in paying expenses and in discounting paper. Bank deposits do not belong to
the depositors, but to the bank; which has thus bought money with credit; and
when Andrew Jackson suddenly removed from the second Bank of the United
States the national moneys deposited there, and placed them "in the custody," as
he expressed it, of certain selected State banks, these amounted at the moment to
$10,000,000, and the discount line resting in part on these deposits was at the
time over $60,000,000, he removed them under a strong misapprehension of the
nature of such deposits; and their removal affected credit, and disarranged
business to a remarkable degree, and caused intense excitement all over the
Union. Depositing those national moneys with the Bank was a trade between the
Government and the Bank for the time being. The Government took in return for
the moneys a Right to demand of the Bank in future by cheque or otherwise sums
at its convenience to the aggregate of the sums deposited; the moneys became
the property of the Bank to be used at its discretion in its ordinary business; the
Government took its return-service for the moneys in a Credit, that is, a right to
draw out at its convenience in the future corresponding sums; there was a
commercial understanding in that case between the Government and the Bank
underlying the buying and selling involved in the Deposit, as there always is
between depositors and their banks; the banks are always bound to order their
business in such a way as to be able to respond to every depositor's call for
money, when it comes; but banks in general find practically that a cash reserve of
one-third of their Deposits is ample to answer the current demands of their
depositors, and the remaining two-thirds may be safely used in discounting short-
time commercial paper to their own profit; Deposits, accordingly, are not placed
"in the custody" of the banks receiving them; they are really bought by the banks
of their customers, who receive in return certain privileges and credits that they
prefer to the "custody" of their own moneys; and under these general motives on
both sides, there has grown up in all commercial countries an immense line of
Bank Deposits so-called, and perhaps we may say that the principal function of
banks at present is to buy these deposits with their Credit, and then to handle
them in further operations to the convenience of their customers and to their own
gain.
Under our present national banking system the Government is still a depositor of
public moneys in some of the banks designated as "depositaries." At the close of
the fiscal year, 1888, there were 290 of such depositary national banks, and the
Treasurer held United States bonds of the face value of $56,128,000 and the
market value of $68,668,182 in trust for these banks to secure public moneys
lodged with them. This system of national deposit with the banks began in 1864.
The total held by the banks June 30, 1888, was $58,712,511, an increase during
the year of $35,395,633.
But our concern is especially with the Bank Deposits of individuals, with their
motives in making these, and with the motives and the methods of the bankers in
handling them. In order to draw the confidence of the people in its locality, a bank
must not only be, but also seem to be, well-to-do and prosperous. Most bankers
find it to their account to become known owners of public stocks; and in many
cases, as in the present national banks of this country, are required by law to own
such stocks, and this gives them a kind of credit and public standing scarcely to be
reached by the ownership of ordinary property. Thus the Bank of England held at
the outset £1,200,000, and now holds £15,000,000 of securities, mostly of the
public debt of England. As merchants begin by laying in stocks of goods of the
kinds they purpose to deal in and offering them for sale, so bankers begin by
bringing together money and credits of their own in order to attract to themselves
in the way of buying and selling the money and credits of other people. In order to
deal successfully in credits the banker must have credit, that is, he must have the
reputation of having property of his own, and of being an honest and careful
manager of his own affairs and of the affairs of others so far as they are intrusted
to him. Each of our present national banks, now (1890) 3150 in number, must
have by law a paid-up capital of not less than $100,000, and in cities of 50,000
people their capital must not be less than $200,000 each, except that in places
having less than 6000 inhabitants banks with not less than $50,000 capital may be
organized at the discretion of the Secretary of the Treasury. The main purpose of
all this is to secure strong financial organizations fitted to draw the confidence of
the communities in which they are placed, and in this manner and by means also
of constant national supervision to attract the Deposits of the people to the banks.
Now, as was said a little while ago, perhaps the central function in banking is for
the banker to receive his customer's money and also his credits falling due, and to
render to him in return for these a credit, that is, a right to demand from himself
an equal sum at a future time or times. The evidence of this right is entered on
the banker's books, and usually too on the customer's passbook, and thus
becomes what is called a Deposit. The ownership of the money and of the credits
deposited passes over completely from the customer to the banker. It is a
complete case of buying and selling to the mutual profit of the parties. The banker
has the right to do just what he pleases with his deposits, and the customer has a
right to draw cheques on his credit as and when he pleases; only the banker's
entry of the transaction on his books is a virtual and a legal promise to pay that
amount to his customer, and therefore he must be ready to respond to his
customer's call, whenever the latter demands, not his own money, but so much of
his banker's money. A deposit, accordingly, is not the very thing deposited, but a
credit. It is the banker's promise and the depositor's property. It is in this way that
a banker buys ready money with a credit.
The motive, then, that leads the depositor to intrust his money to the banker is
the desire, not to have that specific money kept safely for him, for he lost
possession of it absolutely when it passed the counter, he sold it and took his pay
in something else, but rather to have the unquestioned right to call on the banker
for such sums (not to exceed the deposit in the aggregate) and at such times as
may suit his own convenience. He has such confidence in the integrity and
solvency of the banker, finds it so practically convenient to have dealings with him,
and comes to have certain minor privileges at the bank in other relations over non-
depositors, that he quite prefers a credit on the banker to the possession of the
money itself.
The corresponding motive of the banker to receive his customer's funds on these
terms is that he finds by experience (his own and others'), that he can safely use a
large portion of these moneys deposited in other operations in credit profitable to
himself, and at the same time be practically sure of meeting all his customer's calls
for money as they are made. Every good banker finds out, that many of his
customers wish always to leave a balance in his hands; that while some of them
are constantly drawing cheques on him for cash, others of them are as constantly
depositing with him in cash; and that consequently he can properly and safely use
a large part of the money he has purchased with his credit to purchase other
credits with. Deposit-banking, therefore, is not only convenient and profitable for
the depositor, but also excellent and profitable for the banker.
Besides these two parties benefited, there is a gain, too, for the community at
large in deposit-banking; inasmuch as a new capital as such has been thereby
created, a series of new values, which would not otherwise have existed at all.
Were there no deposit-bank in that locality, every man now a customer of it would
of course keep his own reserves for himself for prospective contingencies: now, all
these little reserves are aggregated in the bank, the convenience of them for each
customer's contingencies is just as great as if he kept his own in his own safe or
wallet, but the banker finds that he can use, say two-thirds of the whole, and still
answer each customer's call. Here is a new capital. Here are scattered valuables
brought together to be loaned out to a profit, which were otherwise barren and
useless for the time being. Industry is quickened in a wide circle, products are
created and brought to market, wages are paid and profits are gained, in direct
consequence of bringing together under favorable auspices for safe loaning the
little hoards and driblets of many individuals, which were practically useless in
isolated hands.
It may easily be objected at this point, that it is entirely possible that any banker
might be called upon to pay off all his deposit-liabilities at once in money, which, if
it happened, would break him of course; so it is abstractly possible that all the
lives insured in a Life Insurance Company might terminate in one day, in which
case no Company in the world could meet its obligations; and so it is abstractly
possible that all the houses insured in a Fire Insurance Company might be burned
up in a single night, which, if it happened, would cause the collapse of the
soundest company; but in all these cases of possibility there is a certainty that the
possibility will not become a fact. Ex nihilo nihil fit. A supposition practically
impossible to become a fact can yield no logical inference whatever. The Greek
language has a special grammatical form for a hypothesis impossible to be realized
in fact: would that the English had also such a form of speech! It would save us a
mess of bad reasoning. If, however, any banker may have misjudged for his
locality at any time the proper ratio of reserves kept to deposits received, and be
crowded in consequence, he must sell some of the securities bought with the
excess, or borrow money on them.
Surprisingly large is the amount of bank deposits in all the leading commercial
nations of the world. The average public and private deposits of the Bank of
England, on which no current interest is paid by the Bank, amounts to about
£40,000,000 all the time. The ten joint-stock banks of London carry about
£80,000,000 in private deposits, of which those to remain some time draw an
interest, but those lodged on current accounts and on call draw none. Scotland
has carried deposit-banking further and to greater advantage than any other
country in the world. There are now no private banks in Scotland, but the ten
joint-stock banks with their numerous branches scattered to every village in the
land hold constantly about £70,000,000 as individual deposits, on which current
interest is allowed, and so the habit of keeping one's account with a banker has
become universal with the people. No one thinks of keeping money to any amount
in his house or about his person, and consequently house-breaking and highway
robbery have almost ceased. Bankers even attend all the great fairs in the country
to receive deposits and to pay off cheques. Credit in this form and in another form
soon to be described treads its utmost verge in Scotland. Although in the United
States the custom of keeping deposits with bankers and drawing cheques against
them has not gone nearly so far as in Scotland, and not nearly so far as it will go
in the immediate future, yet the aggregate of individual deposits in the national
banks alone, Oct. 4, 1888, was $1,350,320,861, an increase in just seven years of
26%.
e. Bank Discounts. The credits that are discounted by bankers may be either the
promissory notes of individuals and corporations already characterized, or the Bills
of Exchange soon to be characterized, but the entire function of discount is so
peculiar, that the paper subjected to it ought to be enumerated in a classification
of the instruments of Credit. The discounting of commercial paper is the second
essential function of banking, as the buying and handling of deposits is the first;
and it is more in accordance with genuine banking to pass the price of the paper
discounted to the seller's credit in the form of a deposit, that is, to buy one credit
by creating another, than to pay the money over the counter at once, and thus to
buy credits with money. Those who do the latter are called bill-discounters rather
than bankers, but most of our bankers do both, though there is a tendency
towards the separation of the two in this country also.
Manufacturers and wholesale merchants usually sell their goods on time, as it is
called, say three or six months. Debts are thus created, or to say the same thing
in other words, Credits are thus given. The manufacturer or wholesaler is creditor
and the jobber or retailer is debtor. But a debt is property; and the creditor in this
case wishes to avail himself of his property at once for further production; so he
either takes a Promissory Note from his debtor, or draws a Bill of Exchange upon
him, and this piece of property is ready for sale. Neither piece mentions interest
expressly, but the face sum virtually covers it as contemplating discount. Banks
have been organized for the express purpose of buying for their own profit and for
the convenience of business such pieces of property; some banker, accordingly,
buys this particular piece, that is to say, this creditor passes over to this banker the
commercial right to demand payment from this debtor at the end of three months,
and receives in return from the banker either money direct or so much of the
banker's credit, that is, a deposit in favor of the creditor on the banker's books. For
furnishing this creditor either with ready money or a more available credit in lieu of
his mercantile paper, the banker charges of course a percentage. This is Discount.
Discount is the difference between the face and the price of the paper. This
percentage called discount is the chief source of profit in ordinary banking. It is
virtually compound interest on the sum advanced till the maturity of the paper,
when the banker realizes from the debtor its full face.
The following is a common form of a bankable note:—

$1,000 Williamstown, Mass., Nov. 10, 1889.

Three months after date I promise to pay to the order of Joshua Swan, one
thousand dollars, payable at the Williamstown National Bank, value received.

Due Feb. 10⁄13. Leander Allen.

When Swan has put his name on the back of this note, that is in bank phrase, has
indorsed it, in token that he thereby at once sells and guarantees it to the bank, it
is then discounted on the strength of the two names, Allen and Swan. As Allen
technically takes the advance from the bank for his own benefit, he is technically
expected to take up the note when it matures, and if he do not, the bank falls
back on Swan, who is equally bound with Allen to see that it is paid at the proper
time. Two names are nearly always, not always, requisite to a note acceptable for
discount at a bank; and more names merely strengthen the note, since it is
discounted on the combined validity of all the names upon it.
One obvious advantage of discount is, that it tends to make all capital active and
thus productive. It enables the banks to sell their credit and make a gain, to use a
part of their money deposits to buy mercantile paper with, and so get a bank
interest on them; it enables dealers in commodities to realize in cash minus the
discount the sum of what they have sold on time; and by means of
accommodation notes or bills, which only differ from the others in that there is no
actual debt between the parties, business men may swell the volume of their
business temporarily, and non-business people may borrow small sums for
convenience or emergencies. Bankers have not always credit enough or money
enough from their depositors to buy in either mode all the good paper that is
offered to them, in which case, they raise the rate of discount unless the law
forbids, or by easy evasions even when the law forbids; or else accommodate
regular customers and large depositors first, or buy of all that are "good" a certain
proportion only.
The discount line of 3140 national banks reporting Oct. 4, 1888, was
$1,674,886,285.29.
It is thus through the purchase of discountable notes for money, that banks derive
their partial character as money-lenders. Also, such reserve sums as they do not
wish to invest in negotiable paper, on account of the time involved before such
paper matures, banks frequently loan on call to those customers who have good
collateral securities to pledge for the repayment of such loans. The terms of such a
contract give the bank full authority to sell such collateral "at the Brokers' Board or
at public or private sale, or otherwise at said bank's option, on the non-
performance of this promise, and without notice." So far forth banks become
direct money-lenders. It ought also to be added, that promissory notes with a
single name (or more) are often discounted by banks partly on the strength of
collateral securities deposited to fortify the names upon the notes.
f. Bills of Exchange. A Bill of Exchange is a written instrument designed to secure
the payment of a distant debt without the transmission of money, being in effect a
setting-off or exchange of one debt against another. It is in form and in several
technicalities different from a promissory note, inasmuch as it is an order to pay
instead of a promise to pay, and inasmuch as the maker of a note is always debtor
and the drawer of a bill of exchange is always creditor; but all this makes
practically very little difference between the two as instruments of Credit, since
nearly all bills of exchange come into banks in the way of ordinary business, either
for discount or collection, and as the banks care nothing except for names, the
form of the purchasable paper is a matter of indifference to them. The following is
the essential form of an inland bill of exchange:—

$3,000 Pittsfield, Mass., Oct. 16, 1889.

Four months after date pay to the order of John Kent three thousand dollars,
value received, and charge the same to account of
To Eli Tripp, Boston, Mass. Dan Storrs.

In the case of this bill, which may serve as a sample of thousands, Storrs is the
drawer, who is creditor in relation to Tripp, and Tripp is drawee, but Storrs is
debtor in relation to Kent, who is the payee. A bill of exchange is the sale of a
debt, in such a way that two debts are so far forth set off against each other, and
both transactions are closed without sending any money at all. Tripp owes Storrs,
and Storrs owes Kent, and so Storrs pays Kent by an order on Tripp. As this is a
bill at four months, Kent will doubtless send it to Tripp for his acceptance, as it is
called, that is, his acknowledgment that he owes Storrs to that amount, and that
he will pay the sum to the holder of the bill when it becomes due. An acceptance
is written on the face of a bill, and an indorsement upon the back of the note: the
initials are sufficient for the name of an acceptor, but the full business name is
usual for an indorser.
Thus a bill of exchange is the formal sale of a debt, in order to liquidate thereby
another debt, when the parties to the transaction live in different and distant
places. Storrs does business in Pittsfield, and Tripp in Boston, and it is a matter of
comparative indifference where Kent lives, unless there is trouble at the time of
collection, for he will perhaps negotiate this bill again, that is, make use of it to
pay some debt that he himself owes. It is not often that the same person, as
Tripp, happens to owe another person in a distant town, as Storrs, the same
amount as Storrs owes another person somewhere, as Kent; but by two bills of
exchange, one drawn by each creditor on his own debtor, and then each set off
against the other, through the simple and beautiful expedient of bank balances,
substantially the same advantages are reached as if it always happened so. Many
bills of exchange are drawn at sight, as it is called, in which case the payee
presents it for payment to the drawee, there is no acceptance and no discount,
and a bill of this kind becomes the same as a cheque.
Time bills, however, are usually discounted: the payee indorses his claim over to a
fourth party by name, or, by what is called an indorsement in blank, that is, by
merely writing his own name on the back of the bill, makes it payable to bearer:
when banks buy these bills for discount, it is on the joint credit of acceptor and
drawer and payee, and in that order of validity and precedence: a promissory note
may be protested by a bank without notice to the maker, but a bill of exchange
cannot be without notice to the drawer: a promissory note has two parties to it, a
debtor and a creditor; while a bill of exchange has three parties to it, two creditors
and a debtor.
Inland bills of exchange, both time bills and sight bills, are very convenient in
settling debts between distant places without the costly, and more or less
hazardous, transmission of money back and forth; besides this, time bills possess
the very useful function of enabling a debt due from one person to avail the
creditor as a means of obtaining credit from a third party in discount; and in
addition to these two points of benefit, it is plain, that the common use of bills of
exchange in all their forms releases from use large amounts of money that would
else be needful in trade. The less money in use in any country beyond a certain
point, the better, because, if coin, it costs much to mint and maintain it, and if
paper, it is difficult to make and sustain it of full value.
Bankers sometimes change what they call "exchange" for settling debts between
distant places in the same country; in some cases there may be a sound reason
for this, in other cases there is none, but in all cases it adds a little to the profits of
the banks for handling the bills of exchange; the principle of charging an
"exchange" is this,—when one place as Chicago draws more bills on another place
as New York than suffice to cancel the bills drawn at that time by New York on
Chicago, the point at which the larger indebtedness lies is the point for sending
drafts to which banks naturally charge a percentage; perhaps the idea, which is
actually realized in foreign exchange, that money may have to be sent to liquidate
such a balance, may have brought in the custom of charging "exchange" in such
cases; and there are instances aside from such a supposed balance, in which there
may be an extra cost of collection in some form to the bank, that may justify an
"exchange" charge; but there is another principle counterworking and often
neutralizing entirely this alleged doctrine of a "balance" of debt as between two
distant places, namely, that the chief settling place and commercial centre of a
country, such as New York is, draws towards itself from the whole circuit with such
force, everybody wanting a balance there and having occasion to send funds
thither, that drafts on such a place are apt to bear a premium without any
reference to its comparative indebtedness at the time.
Very similar to these inland bills in their nature and course and usefulness are
Foreign Bills of Exchange, which, as a vastly important topic, especially in its
relations with Foreign Trade, we must now study minutely and completely.
Commercial relations between two countries, let us say, for instance, France and
England, always give rise to a mutual indebtedness of their merchants; if these
reciprocal debts were all to be paid by the actual sending of money to and from,
there would have to be a constant and expensive and more or less hazardous
outward and inward flow of the precious metals in respect to each country; all
which necessity is neatly obviated by the use of reciprocal bills of exchange, and
coin is only transmitted to settle the balances on whichever side there may happen
an excess of debt at the time. French dealers are always sending goods to
England, and English dealers goods to France; and for what they send to England
the French merchants draw bills of exchange on the parties to whom the goods
are consigned, and the English merchants draw similar bills on their debtors in
France; then these bills are bought up by bankers or brokers in either country, and
virtually exposed again for sale through new bills drawn against them to any
parties who may have debts to pay in the other country. Thus bills on London, in
other words, on English debtors, are always for sale in France; and bills on France,
that is, on French debtors, are always for sale in London; the reciprocal debtors of
the two countries, therefore, instead of sending coin to cancel their debts, buy and
transmit these bills.
Let us take a sample instance. Pierre & Co. of Paris send a cargo of wine worth
£1000 in English money to John Barclay of London. Barclay thus becomes
indebted to the Paris firm to that amount, and Pierre & Co. draw at once, so soon
as the cargo is despatched, a bill in francs to the equivalent of £1000. If they
themselves have no debt to pay in London, they will sell this bill immediately to a
Paris banker or broker (if the exchange be then at par) for its full face minus
interest for the time it has to run, say two months; this broker is now ready to sell
this bill again, or what is the same, his own bill drawn on the strength of it, to
anybody in Paris who may have a debt to pay in London; and the party in London
who receives it in liquidation of a French debt to him, presents it at maturity to
John Barclay for payment. Thus one bill of exchange serves the ends of two
creditors and one debtor: Pierre & Co. get their pay for the wine, the London party
gets his pay for goods, and Barclay pays his debt, by means of it. A bill drawn in
London for a cargo of hardware sent to Paris is similarly negotiated with a London
broker or banker, and finds its way similarly to France in payment of some English
debt owed there, and ends its course when it reaches the French firm on which it
was originally drawn.
We are now in position to understand clearly what is meant by the par of
Exchange in its commercial (not coinage) import. The merchants in Paris, who
have debts due to them from London, draw bills of exchange for the amount of
these debts; and, through the agency of middlemen, go into the market to sell
these bills to other Paris dealers who have debts to pay in London. If the former
class have a larger amount to sell than the latter have occasion to buy, in other
words, if there be a larger amount of debts due from London to Paris than from
Paris to London, then the natural competition of the sellers in Paris of the bills on
London will lower their price somewhat in that market (Paris), in order, as usual,
that the Supply and Demand may be equalized there. In this case the par of
exchange is disturbed, a bill on London for £100 in francs may not sell for over
£99, and the exchange is then said to be 1% against London, or, which is the
same thing, 1% in favor of Paris.
The par of Exchange, accordingly, between two countries, depends on the
substantial equality of their commercial debts. In the above example, if the
exchange as against London in favor of Paris continue long, and especially if the
premium of 1% on bills drawn in London on Paris be sufficient to cover the
expense of the transmission of specie from London to Paris, gold will begin to flow
from London to Paris, because the debtors there may find it cheaper for
themselves to buy and send gold than to pay the high premium on bills; and thus
the equilibrium of payments and the commercial par may be restored. Also, this
par tends to restore itself, without any sending of specie, in this other perfectly
natural and effectual way: if bills on Paris are at a premium in London, for the
same reason that they are so will bills on London be at a discount in Paris;
therefore, there will be a direct encouragement to the extent of the premium for
exportation of goods from England to France, because on every cargo thus sent
bills can be drawn and sold in London for a premium; while the more bills on Paris
thus offered in London, the more the premium disappears of course, and the par
will be restored so soon as the bills on Paris substantially equal the bills on London
offered in Paris; and at the same time, so long as the discount on London bills
continues in Paris, there is a direct discouragement to further exportations from
France to England, because the bills drawn in virtue of such cargoes can only be
sold below par, and this too tends to restore the par in the commercial sense of
the term.
Here is another instance of a magnificently comprehensive law, by which Nature
vindicates her right to reign in the domain of Exchange. It is through this natural
and beneficent law of automatic compensations, stimulating exportations on the
one side and slackening them on the other, that most of the casual disturbances of
the commercial par as between two countries are easily and perfectly rectified.
While this great law is in full possession of our minds, let us note in passing how
artificial restrictions by one country on the importation of goods from another,
commonly called "Protectionism," affects this commercial par as between those
two countries. Besides stopping absolutely a mass of otherwise profitable
exportations and importations for both countries, it makes less profitable to the
country imposing the restrictions whatever foreign trade does take place between
them in spite of the restrictions. Suppose England, as is the fact, opens her ports
freely to the commodities of France, while France puts restrictions in the shape of
heavy taxes upon importations from England; more French goods are likely under
these circumstances to seek English ports than English goods to seek French
ports, because they are more welcome; consequently, more bills of exchange
drawn on London will naturally be offered in Paris than bills on Paris in London,
and will so far forth be sold at a discount, while the London bills drawn on Paris
will be sold at a premium; in other words, the comparatively few goods that do get
out of a "protected" country, realize less to their owners than the natural value,
because the bills drawn on them are extremely apt to be sold below par! With this
course of things all known facts agree. Since the United States became
conspicuously a "protected" country a quarter of a century ago, it has been at rare
intervals and for short periods that bills drawn here on London have been at par.
They have been usually much below par. The equivalent of £1 sterling in United
States money is $4.8665; and when bills on London sell for less per pound sterling
than $4.86, they are at a discount in New York or Boston; and exporters here are
direct losers to the extent of the discount.
If, however, notwithstanding the beautiful action of this great law of commerce,
the disturbance in the commercial par as between two countries continues
obstinate, it indicates one of several things as true of the country, whose bills of
exchange drawn on another persist in a considerable discount; (1) it has come to
be a pretty steady debtor country as towards the other, by sending thither its
national or State or corporation bonds, whose interest and ultimately principal also
must sooner or later be remitted in exports extra to the exports needed to pay for
the current imports of goods; (2) it has either naturally or by persistence in a bad
public policy little or no shipping of its own, so that freights both ways have to be
paid to foreigners in the form of exported goods extra to those exported to pay for
those imported in transient trade, which of course increases the number and face
of the bills drawn in the luckless country on the lucky country or countries; (3) it
has made the vast and fatal mistake of excluding by legal barriers of taxes put on
for that purpose the goods of foreigners, whose only motive in coming is to take
off corresponding goods of the deluded country's own to the profit of both, and so
these last-mentioned goods must seek a foreign market (if at all) at reduced rates,
their natural market having been destroyed by national law; and (4) it may have
made the national money in which the bills drawn on it are liable to be paid an
inferior money, either transiently by mere abundance or permanently by worsened
quality, which is well illustrated in the instance of Amsterdam as cited in a
preceding chapter, and which can only be remedied by raising the standard of the
money to the level of the best.
Very little, if anything, can be inferred as to the prosperity of a country or even as
to the real condition of its "exchanges" in this technical sense of the term, by the
transient movements of gold to and from the commercial countries, in their
present complex relations as gold-producing and non-gold-producing countries and
as debt-settling and non-debt-settling centres. Gold moves back and forth in
obedience to several other impulses than to settle the balances in an international
trade of Commodities. Gold-producing countries of course export gold just as they
would any other native product. If for any reason gold becomes relatively more
abundant in one country than in other commercial countries around it, general
prices will rise in that country in consequence; which means, that gold is then and
there the cheapest article that the people of that country can export to pay their
commercial debts with. Also, the imports which a nation pays for in gold, or in bills
of exchange bought above par, are often bought with a high profit. Creditor
nations, nations that have managed to make themselves settling-places for the
world's commercial debts, and nations that welcome imports without impediment
from every quarter of the earth (and England may serve as a sample for all these
three), will largely pay for imports in gold or in bills bearing a premium.
It is a thousand pities, that technical terms which are quite misleading unless one
remembers their origin and exact significance, have come to be intrenched in
commercial language too strongly to be dislodged at this late day, as the common
terms to express the state of the "exchanges" as between two countries. These
terms are "against" and "in favor of." The old Mercantile system, which has left
other unsavory progeny behind it besides this, in order to keep and heap gold and
silver in a country, encouraged exports in every way and discouraged imports, in
order that the "balance of trade," as the phrase ran, that is, the difference in
volume between exports and imports, might come back to the country in gold and
silver; and this foolish and now thoroughly exploded notion gave rise to the terms
in question; exchanges were then said to be "against" a country when the record
seemed to show more imports than exports, as if that implied that the imports
were too great for a "balance" in gold and silver; and were said to be "in favor of"
a country when its export-line was greater than the line of imports, as implying a
favorable balance to be met by a specie-import in future. The false "System" is
gone forever, but the "terms" still abide in commercial language, and confuse the
minds more or less (more rather than less) of everybody who tries to make these
terms a vehicle of thought. We have now described the causes and courses of
international bills of exchange without resorting to these technicalities, which
imply movements of gold and silver which do not actually take place under the
conditions supposed; for example, the exchanges were "in favor" of the United
States in 1874-77, there being an apparent trade balance of $164,000,000 in 1877
and a still larger in 1876 and a larger one in the two years preceding, but the
import of specie was small in all those years, averaging about $25,000,000 a year,
and the rest of the excess of exports went to pay interest due to foreigners,
freights on the cargoes both ways, and so on. It is difficult to use without abusing
the terms "against" and "in favor of" in this connection, and the reader is
cautioned not to employ them; although "discount" and "premium" on
international bills of exchange are matters extremely important to observe and to
know the grounds of. Were there no counterworking principle, bills of exchange
drawn on capitalist and creditor countries, like Great Britain, whose imports are
apt to be strongly in excess of the exports, and whose public policy is wise enough
to put no obstacles in the way of the free receipt of imports, would be at a
discount in countries sending exports thither.
This counterworking principle, already illustrated as to inland exchange in the case
of New York, is best seen internationally in connection with London, which is the
settling-place of the world's commerce. When the Romans dredged the Thames
and made "the pool" just below London Bridge, they took the first steps towards
making that town a commercial centre; since a market for products is products in
market, the busy exchange of commodities there has quickened in every age the
accumulation of capital and the increase of population; previous to the Dock
Laborers' Strike in 1889, about 100 vessels entered the port of London every day,
which received about one-half of the total customs revenue of the United
Kingdom, and sent out about one-fourth of its exports; the business of out-of-the-
way and semi-civilized countries has somehow (and it would not be hard to tell
why) centered in London, as well as the business of originally British Colonies
everywhere and of all other commercial countries; accordingly, debtors and
creditors abound there, bills of exchange concentre there, and debts due from
everywhere are payable there; and therefore, because bills on London are good all
over the world, the Demand for them counterworks the natural cheapness of the
bills drawn on exports thither as compared with the natural dearness of the bills
drawn there on exports thence.
Another thing must be borne in mind in comparing the merchandise accounts of
any country, namely, that whenever the "exchange" is sufficient to cover the cost
and risk of the transmission of gold, gold itself is likely to go freely from the
country, in which bills drawn on exports are at a premium, or to use for once the
old hazardous phrase, "against" which the exchanges have turned, and bills will be
drawn on that gold, as upon common merchandise, and sold of course for the
sake of the premium; or, if a decidedly higher rate of discount prevail in a
neighboring country, gold will naturally go thither from the lower-rate lands,
because lenders in the latter will desire to realize the higher rate of current
interest on money, and bills will be drawn on this gold as well, which will tend to
lower the premium on bills there; unless, then, the premium and the difference in
interest abroad will justify the speculation, the gold will not stir; although, if the
difference in interest abroad were very considerable and promised to continue for
some time, the bills on the gold might sell at a discount and still leave a profit to
the senders; but the home bankers can always stop a drain of gold of this kind by
raising their own rates of discount.
This casual mention of bankers leads on to the weighty point, that the whole
business of foreign exchange is falling more and more into the hands of the
bankers, because bills drawn by and upon well-known bankers naturally have a
better credit than ordinary commercial bills, the names upon which are less widely
and favorably known. Accordingly, persons sending cargoes of cotton, say, or of
any other valuables, from New York to Liverpool, arrange with their bankers in
New York to have the proceeds of the cargoes put to the bankers' credit in
London, and then these bankers draw bills on the London bankers, which will bring
a higher price in New York than a common commercial bill, because many
remitters and most travellers prefer bankers' bills, which, though they cost more,
pay better and buy better abroad. Commercial bills are still bought and sold in
every commercial town, but bankers' bills are more and more taking their place;
and the quotations usually give the current price of each.
London is so prominent as the settling-place of the world's transactions by means
of bills drawn on and by London bankers, partly on account of the commercial
predominance of England, partly from excellent banking customs there, and
mainly because an immense mass of cheap loanable capital exists there, which
even foreigners may borrow at London rates, provided only that they can get
credit there, that is, leave to draw on a London banker, to whom of course
remittances must be made as fast as he accepts their bills. Besides, the Bank of
England, as the principal bank in Great Britain, and as closely connected with the
Government, acts as a bank of support to the public and private Credit of that
country. It does a regular business as a bank of deposits and discounts, but it
means to keep its rate of discount somewhat above the rate demanded by the
other bankers in London, so as not to come into competition with them much in
their ordinary business, and be able to act as a bank of support to them and all
others in times of pressure. All banks have about so much credit to sell, and no
more; most banks sell in ordinary times about all the credit they have, because
their profits depend on that; but if the Bank of England did this, it would become
useless in periods of panic. In point of fact, that Bank just begins to sell its reserve
credit, when the credit of the bankers below is exhausted. When they are at the
end of their rope, there is generally an abundance of slack rope still in the great
Institution above.
Now, as gold can be drawn out of the Bank of England by the cheques of
depositors as well as by the presentation of its own notes for redemption, the Rate
of Discount becomes a matter of prime importance in the management of the
Bank. The whole line of deposits is a line of liabilities to pay out gold, if the
depositors demand it; and, as deposits come largely through discounts, whenever
there is a strong tendency to draw out gold so as to weaken the reserves of the
Bank, the directors have an effectual remedy by raising the rate of discount. The
higher the price the Bank charges for its credit, the fewer, so far forth, will be its
customers, and the smaller its line of deposits, and the less likely a continuous
drain of gold from its vaults. The Bank of England is managed throughout by so
simple a manner as the turning back and forth of this magic screw of Discount.
Besides the use of the term "Par of Exchange" in the broad commercial sense in
which we have now been examining it, as indicating the substantial equality of
international debts as between two countries by the current prices of bills of
exchange, there is another and subordinate sense in which the phrase is
employed, namely, as denoting the relative value of the coins of one nation in the
coins of another. Thus, our present gold dollar contains 23.22 grains of pure gold;
the English pound sterling contains 113.001 grains; consequently, there are
$4.8665 to the English pound; and this is the "par of exchange" (in the secondary
sense) between the United States and Great Britain. Between the United States
and France the "par" is $1 to 5.18 francs, since the franc is 19.29 of our cents. An
English shilling equals 24.33 of our cents, the new German "mark" is 23.82 cents,
and the new Scandinavian "crown" equals 26.78 cents.
g. Bank Cheques. In substance indeed and even in form, Cheques are Bills of
Exchange, but the two have such differing legal incidents, and run so different a
course towards extinguishment, that for our purposes in this treatise they should
be put under a separate discussion. Bills of exchange are expressly drawn "at
sight" or for a day certain, when they become payable by the drawee: cheques say
nothing about "sight" or any future date, though they are really drawn at sight,
and are payable to bearer on demand: they must, therefore, be presented for
payment within the shortest reasonable time (all things considered), in order that
the holder may legally claim against the drawer should the banker fail meantime: a
cheque is held as the payment of a debt until it be dishonored on presentation:
the banker bears the risk of the forgery of the drawer's name, unless his mistake
be made easier by the drawer's carelessness in drawing: a cheque is not payable
after the drawer's death. The parties to cheques are the Drawer, who is a
depositor with some banker; that banker thus becomes the Drawee; and the
person named in the cheque is the Payee, who can indorse his own right over to
another person by name or in blank to bearer. When a cheque is drawn in this way
by one banker upon another, it is usually called in this country a Draft.
Formerly in England, and in other countries as well, each considerable dealer kept
his own strong box, and when he had occasion to make payments, told down the
solid cash upon his own counter. Afterwards, the goldsmiths of London solicited
the honor of keeping in their vaults the spare cash of the merchants, and these in
their payments among each other came to employ orders or cheques drawn on
the goldsmiths, and at the shops of the latter the principal payments in coin were
effected. The later introduction of Banks brought along with it the custom, now
continually widening in commercial countries among all classes of the people, of
keeping one's funds with some banker, and making payments by written orders or
cheques upon him. When the person making the payment and the person
receiving it keep their money with the same banker, there is no need of any
money at all passing in the premises, the sum being merely transferred in the
banker's books from the credit of the payer to the credit of the receiver. The
banker is quite willing usually to do this business for nothing, and even sometimes
to allow the depositors a low rate of interest on all balances remaining in his
hands, in consideration of the privilege involved of loaning such proportion of the
aggregate of these sums as he deems safe to other parties at a higher rate of
interest.
In the larger cities, by an arrangement called the "Clearing-house," substantially
the same benefits are secured as if all the depositors of the city kept their cash at
the same bank; inasmuch as all the cheques drawn on each of the different banks,
and passing in the course of the business day into other banks, are assorted
before evening at all the banks, and adjusted the next morning through the
clearing-house, and the credits and debits of each bank are set off as far as
possible against each other, leaving only small balances to be settled in money.
The London Bankers' Clearing-house was established in 1775; in 1864, the Bank of
England was admitted to it; and since then, the Clearing-house itself, and all the
bankers and firms using it, keep accounts with the Bank of England, and the
balances, formerly settled by money, are now adjusted by simple transfers of
account on the books of that great Bank. This carries out the grand principle of
the Clearing further than it has yet been carried in this Country, although the
United States Sub-Treasury not very long ago joined the New York Clearing-house,
while the practical details of the Clearing are simpler and better in New York than
in London. The average clearings in the London house (and there are besides
many other clearing-houses in the United Kingdom) were £5,218,000,000 a year
for 1875-80, and the amounts cleared frequently rose to £20,000,000 a day;
which, if paid in gold coin, would weigh about 157 tons and require about 80
horses to carry it; and if paid in silver coin would weigh more than 2500 tons and
require 1275 horses. This is stated on the excellent authority of the late Professor
Jevons.
The total business of the 23 clearing-houses of the United States in 1880 was over
$50,000,000,000; the New York Clearing-house did 65% of that business for that
year; and the average daily clearings there for the fiscal year 1879 were
$76,167,983.
We will now describe mainly from personal observation the New York Clearing-
house, which was established in 1853, premising that the principle is the same,
though the details may be different, in all other clearing-houses wherever located.
Business men in New York, as elsewhere, usually pass in to their bankers as a
deposit all the cheques and current credits received in the course of a business
day. It is the custom for everybody to draw his own cheque on his banker to make
payments with, and to pass in to his banker the cheques he receives from others.
Say there are sixty clearing-banks in New York City. Each of these banks sorts out
after business hours every day all the cheques it has received that day drawn on
each of the other banks into separate parcels ready for the clearing the next
morning. Each bank has, then, fifty-nine parcels to deliver, which represent the
property of that bank, and are a claim upon the other banks; and also to receive
fifty-nine parcels, which represent the property of the other banks, and are a claim
upon itself.
Before ten o'clock in the morning sixty messengers, each having fifty-nine parcels
to deliver, appear at the clearing-house, each reporting to the manager at once for
record the amount of "exchange" he has brought, which is entered of course as
credit to his bank; and then all take their positions in order in front of the sixty
desks, which occupy the floor of the house, behind which sit sixty clerks, each
representing one of the banks. Each messenger stands opposite the desk of his
own bank, with his fifty-nine parcels already arranged in the exact order of the
bank-desks before him. Of course no messenger has anything to deliver to the
clerk of his own bank. Each clerk inside his desk has a sheet of paper containing
the names of all the other banks arranged in the same order as the desks, with
the amounts carried out upon it which his messenger has just brought to each. All
these are entered in his credit column. Each messenger carries also a slip of paper
ready to be delivered with each parcel to each clerk, on which is entered the
amount of the cheques he now brings to each bank. Of course the amount
delivered to each bank is debit to that bank, just as the amount brought by each is
credit to that bank.
A signal from the manager, who stands on a raised platform at one end of the
room with his two or more clerks before him, and each messenger steps forward
to the next desk in front of him, delivers his parcel and also the slip that goes with
it, which latter the clerk signs with his initials and hands back to the messenger as
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