6: Investment Banking
The author seems a bit dubious whether investment banking ought to be considered "banking" at all. Certainly ,the investment banker helps in the process of helping commercial enterprises get the financial support they need from individuals who have idle wealth - but the nature of their services is much different than that which commercial bankers provide.
Savings Institutions
The practice of "saving" is relatively new, as it requires a person to generate more than they need for their immediate consumption and set some of it aside for the future. When people were more directly involved in the production of goods, their excess production was mostly waste: the farmer could "save" some of his crop, but it would soon decay if it were not consumed. But in the present economy, a great many people work for wages and the profit of a business is paid in money. Money does not rot, and can be easily accumulated and held indefinitely. So in the modern economy, saving is possible and, for some, quite inevitable.
The rise of the middle class means that more people have more wealth than before, and many lack the means to store their money safely. The principal value of banks and savings institutions is simply money-keeping - but the ability of the banker to make use of savings has led them to encourage the practice of saving, influencing those who simply do not see the point of setting money aside for an unknown future use.
Whereas banks are mostly focused on serving those who need to borrow, savings institutions seek to serve those who have capital in savings. The net result is the same - some borrow the excess of others - but the focus of the business is service to depositors rather than to borrowers. There's mention of time deposits, where a saver could only earn interest on their funds if they agreed to leave them in the custody of the bank (for lending) for an extended period of time.
There's also a mention of postal savings, more common in Europe, that originated when the community post office was well-protected. Individuals would mail money to themselves in envelopes that they would not retrieve until it was needed, hence the post office became their money keeper. Transforming the post office into a bank simply eliminated the need for envelopes and stamps to store money. Postal savings was formally attempted in the US, but the existence of banks in most locations made it unnecessary.
Trust Companies
Trust companies manage the wealth of an individual or a group according to their stated desires. It is most common for a trust to administer an estate after a person's death, providing income to heirs who do not have access to the principal, but trusts can be established for a variety of reasons for persons living as well as dead. Some trust companies are management firms that assist shareholders in the establishment of a corporation, or who act on behalf of bond-holders, etc.
The author mentions that the "trust" business is booming in the United States, but that the industry is still evolving. The governance of a trust is typically determined by the documents by which it was founded, and there is no regulation or legislation about trusts in general. Because of the myriad of purposes and functions, it seems doubtful that the trust business will be standardized.
Bond Houses and Investment Companies
An investment company is founded by individuals who pool their capital to create a firm whose only line of business is managing the investment of that capital. An investment company may specialize in a specific kind of investment (bonds, mortgages, stocks, loans, commercial paper, etc.) but most often the company is not restricted by its charter as to the kinds of investing in which it may engage.
At the author's time there had been very little attempt to regulate investment companies, but fraudulent practices had given rise to a strong demand for intervention. There's some consideration of the laws in Kansas in Wisconsin, and speculation as to whether they will become a model for national governance that will provide adequate protection for shareholders without undue constraints that would hamper the profitability of such enterprises.
Land Banks
The term "land bank" covers a number of different organizations whose primary business is mortgage lending.
Many land banks were organized in Germany in the wake of the seven-years war to provide estate owners whose property had been damaged during the conflict to restore and improve their estates. Another type of land bank appeared during the nineteenth century as a means of enabling serfs to transition into the role of freemen. Yet another was created during the westward expansion of the United States to encourage settlement.
(EN: This goes on for quite a while with the peculiarities of various instances.)
Stock Exchanges
A stock exchange enables companies to obtain funding by selling shares of ownership to many individuals (rather than gathering large amounts from a few), and allowing those shares to be bought and sold. The author seems a bit awestruck by the "modern" stock exchanges of his time- in which the use of telegraphs enables people in remote locations to participate in exchanges.
The exchange is essentially a marketplace with formal rules that govern trading, for the sake of brining some order to the chaos of thousands of people constantly trading the securities of thousands of companies. There is distinction between the firms that assist corporations in forming and selling their initial issue to the market, those that trade securities on behalf of clients who may be individuals and institutions.
The sale of stock can occur among private individuals, or it may be done in local exchanges - but the tendency is for stock exchange to centralize in a commercial city such as New York, London, Paris, or Berlin.
There is a mention of the drawbacks of central stock exchanges: the tendency for panic to occur and spread, the ability of some individuals to manipulate the market to profit by creating unnatural fluctuations in the prices of securities, etc. No mention is made of government regulation of these markets.
Defects in Banking Machinery
The purpose of banking is to move capital to where it is most needed - from those who have money without a purpose for it to those whose purposes require money to achieve. Where this happens efficiently, the system is functional - and while a system may be inefficient, there are some respects in which it is defective and prevents the function from being achieved.
The cost of money, like anything else, is a voluntary agreement between the lender and the borrower - but it is suggested that banking often skews the negotiation in favor of the lender. Where a banking institution aggregates the funds available in a community, it gains a kind of monopoly control over capital. It is also possible for banks in a community (or a state or nation) collude to fix interest rates.
There's a bit of an effuse discussion of the way in which the system in the US is still designed to accommodate the needs of a rapidly expanding economy. As the nation becomes more settled and stable, the author maintains that we must "look to a European experience" for a more suitable model.
He mentions that the subsidization of industry, common in Europe may be difficult or impossible in the US because of a strong distaste for the use of public monies to support private enterprises as well as the prohibition of the state to engage directly in commercial activity.