I had thought that it would be my particular task to explain this transaction of clearing, and after a good deal of meditation I had worked out a thought which I am sure is next best, after your definition; and it will take us one step nearer to the Clearing House, without getting into any of its complexities. My illustration is this: if there were but one bank in a town, and all the people did their business through this single bank, by depositing their money and checks, and then paid all their bills, with checks on the bank, apart from any outside business, every debt in the town would be paid by check, and there would be no need of any money at all as the claims and debts would be exactly equal, and would always cancel each other to a cent.
MR. LAWYER: What you have said about one bank in a town is equally true of two, three or four, or any number of banks, if you assume that every person in town does his entire business through the banks, providing, of course, that the banks get together, and offset all the checks and drafts they receive during the day. There might be something to pay from day to day for the time being, but all would be adjusted in the end, without any variation or difference.
MR. BANKER: Precisely so, but when you get those bankers together, for the purpose of trading checks, you have created a Clearing House.
Stephen Colwell says: "Clearing is beyond all question, the simplest, the most economical, and when applicable, the most efficient of all modes of paying debts; it is precisely analogous to balancing accounts."
James G. Cannon, author of the leading work upon the history of American Clearing Houses, describes a Clearing House "as an office, established by the banks of a city, where their representatives meet daily to exchange drafts and checks, and adjust balances." Again, "as a device to simplify and facilitate the daily exchanges of items, checks, drafts and bills of exchange, and the settlement of balances among the banks, and a medium for muted action upon all questions affecting their mutual welfare."
You would think that the Clearing House was such a simple matter, and such a great advantage that a Clearing House would have been thought of, and put into operation as soon as banks got under way, but not so. Their development and establishment, as we know them today, has been slow indeed, and the early history of their origin most interesting.