tion of money with greater ease than could the metal itself. Here we have a second refinement of money through the agency of credit-the banker's receipt, as the beginning of paper-money.

It will be seen, and should be noted here, that the banker is himself an essential factor in the refinement of money through the agency of credit; to illustrate his importance in this respect, we will trace this development one step further before proceeding to consider paper-money. We may suppose that, through the stimulus to interchange developed by more efficient money, the trade of the community has so far increased as to require the services of several bankers to transact the business; and that when metallic money, receipted for by one banker, is lent by him, the borrower deposits it with another banker, who also gives his receipt for it, thus furnishing two receipts which circulate as, and perform the function of, money, though representing one and the same metallic base. Here we have a third refinement in the growth of money through the agency of credit.

In thus tracing the growth of money from improvement by natural displacement to improvement by credit, it has been with a view to greater brevity and a clearer outlining of principles that we

have illustrated the process by a concrete example; but the delineation is drawn from actual history. Credit, as a factor in monetary improvement, opened a new era of industrial growth, which may be classified as only second in importance to the adoption of a medium of exchange.

History records that the goldsmiths of London were the first bankers and the first issuers of paper. money in that city.

The superiority of paper-money over metallic money consists: first, in its cheapness; second, in the readiness with which its volume may be expanded or contracted; and third, in the ease with which it may be handled and transferred. Beyond these three important qualifications, it has no monetary function that is not derived from the commodity in which it is redeemable. It may be issued against any property that has the qualifications to serve as a medium of exchange, but if the thing selected is deficient in any of the essential qualifications of money, the paper-money will be similarly deficient. For example, paper-money cannot be issued against land, for land itself has no adaptability for use as money. Mortgages on real estate, government, state, or railroad bonds, cannot perform the service of money, and therefore are unfitted to be a basis for paper-money.

As paper-money is but a "promise to pay on demand," the thing in which it is payable must itself have all the essential qualifications of money, and these qualifications, as we have seen, are possessed in the highest degree by silver and gold. It is these metals that perform all the essential duties of money; but by the introduction of paper, simply as their representative, the volume of money is increased and its efficiency enhanced.

To have a paper-money of high efficiency, two conditions are essential: it must rest upon its only true basis-the precious metals, and it must be bank, and not government, paper-money.

We saw that when our banker lent a portion of his metallic money, against which notes had been issued, it went to another banker, who also issued notes against it; but the fact must now be noted that when our banker lent the money, he received from the borrower an equivalent in value as security for its safe return; consequently, although these notes exceeded in amount the metallic money against which they were issued, the security held fully insured their redemption. In the regular order of banking this is what always takes place; no paper-money issued by a bank ever finds its way into circulation until there is an equivalent in value deposited somewhere to secure its redemption.

The banker who issues paper-money is its natural guardian; it is he who, impelled by the incentive of profit, assumes all the responsibility of its prompt redemption when presented for payment; his property and his integrity are pledged to its redemption; why then should the state interpose to relieve him from the responsibility of his own act? Such interference can have no other effect than to lower the standard of banking integrity. The banker is the one man especially competent to judge of the character of the security that shall protect his notes while in circulation, and his interest lies in protecting them.

Bond-security as a basis for bank-notes is another example of false theory in our monetary legislation; but the public mind has unfortunately become charged with the belief that such security is essential to a sound circulating medium, though no phase of the theory can be presented that will stand intelligent scrutiny. A bank is a dealer in money only; if it should permit all its money to go into long-time securities, its banking capabilities would be exhausted; if it is obliged to invest a portion of its capital in this way to secure its note-issue, its ability to serve its customers is crippled to that

extent.

One important function of a bank is to gather up the idle money of its neighborhood and to keep it in active employment, and this is a bank's main source of profit. Exclusive of savings-banks deposits, the amount of money thus gathered and kept actively at work in the United States is almost three times as great as the total sum of the capital invested in the banking business. This money is generally subject to immediate call; a bank must be ready to pay the checks of its depositors whenever they are presented. It finds, however, that on the principle of general averages, it can lend the greater part of the money, and still meet all demands upon it; but in order to do so, it can lend on short time only, and it must have the right, if a loan be not paid when it becomes due, to sell the pledged securities of the defaulting debtor at his risk. These conditions may seem hard, but they are not of the banker's making -they are inherent in the business; a banker is of all men the least of a monopolist; he is much more the servant of his customers than their master. Indeed, banking is in a special sense a public business; a bank may be owned by only a few individuals, but the community where it is located has the larger interest in it, and the larger power over it as well. Most occupations may be conducted inde