Page:A History of Banking in the United States.djvu/52

 its place; or, they obtain the possession of an equivalent capital which is imported when the displaced metal is sold abroad for real capital. This is the capital which they lend, and the one which produces the interest which they obtain on their notes. As there are four or five steps, and they are all out of sight, at least so far as their connection with the operation of the bank is concerned, there is room for a great number of partial and fallacious interpretations. It comes to be believed that bank notes have a substantive existence, that they, on which interest is obtained, are not like the notes of individuals, on which interest is paid; in short, that they are money, perhaps even capital.

The view of notes as supplanting specie to an exactly equal amount is what is called the "currency principle." According to it the note issuers have a monopoly privilege and strive with each other for shares in a quantum of gain which cannot be surpassed.

A very large class of credit operations, however, consists in what we might call suspended exchanges. Half the exchange operation is performed but the other half is delayed under a promise or contract of later delivery. A bank steps between. It fulfils the contract at once and does the waiting. If no defalcation occurs, all the givings and takings will be equal, plus a commission for waiting. If, therefore, a bank could intervene in all the cases of suspended exchange which occur in the market, it could keep an account of debit and credit with all the parties. At the end of a certain time all the entries would balance, except for the commission which would fall to the bank as reward for its services, and all the transactions would be closed. If, therefore, the bank could get all the transactions into its hands, and promise to pay everybody, it would need to pay nobody. The whole would be resolved into a book-keeping transaction. If, moreover, all those who had money would carry it to the banker for safe keeping, it is with this money that he would pay in the few cases in which for any reason the use of money was actually called for.

In these last observations lie the magic and mystery of banking. If only the requisite prestige ("credit;" "confidence") can be won to set the institution in operation, it is self-acting, and all that the happy manager has to do is to take toll from its operations. The legitimate way to win the prestige is by offering guarantees of capital and character. Another way is to impose by inflated words and pompous parade upon the credulity of the bystanders. This history will show the difference between the two.

We can go one step further. It would be a great additional advantage if the transactions were not only recorded on the books of the bank, but if also evidence of them was transcribed on portable records, which could be shown and transferred by the parties in the market as their interests in further transactions might render desirable. The bank therefore "issues" paper evidences of the existing contracts which may take any convenient form. Bank notes are one form. Their great convenience is that they are entirely impersonal, and betray nothing of the mode or occasion of the