It has long been the practice in certain quarters to point the finger of scorn at the theorist in banking matters, to taunt him with the old proverbs that "an ounce of practice is worth a peck of theory," and that "a little knowledge is a dangerous thing." Perhaps this tendency has been less marked of late years, for not only in banking but in nearly every branch of human activity it has been recognised that scientific knowledge is desirable, if not absolutely necessary, and this desire for knowledge has been manifested in the recent development of educational and examining bodies in most professions and businesses.

In spite, however, of this widespread thirst for information, it is wise to remember that the above time-honoured proverbs still contain a certain amount of truth in them. Banking certainly is a profession or business, whichever one may prefer to call it, in which the more practical virtues are altogether indispensable. Tact, knowledge of character, a clear head and a cool judgment, combined with that capacity for taking infinite pains which has rather mistakenly been held to be the chief attribute of genius, all these are required to make a successful banker, and without a considerable share of them, no amount of theory will suffice. It is well then to remember that the theory of banking must supplement and not take the place of those business habits which are essential to success. "You cannot make a silk purse out of a sow's ear," and a raw junior clerk cannot fit himself for the management of a bank by two or three months' desultory reading of text books.

Keeping this proviso in mind there is, however, no doubt whatever that a thorough knowledge of the theory of banking is a most useful possession, one with which no bank clerk can afford to dispense. Given equal conditions in other respects, the man in any station of life who does his work intelligently is always superior to the man who obeys instructions blindly. Place these men in a position outside the usual routine to which they have been accustomed, and the difference between them becomes still more apparent. The bank clerk who is content to fulfil merely routine duties may find that a knowledge of banking theory is unnecessary, but to the man who is ambitious to rise to positions of greater responsibility, such knowledge is not only necessary but imperative.

When we approach the subject-matter in hand we are met at the outset by the difficulty of a proper definition. What is meant by "currency"? Such well-known authorities as Sir Robert Peel and Lord Overstone excluded from the term all forms of paper money except bankers' promissory notes payable to bearer on demand, though neither of them had a satisfactory reason for so doing. The fact that a Bank of England note is legal tender seems to have misled many people into drawing a distinction between it and all other forms of paper money, and the word currency is often used therefore to denote that part of the circulating medium which is legal tender. When, however, we come to discuss those monetary problems which have so long vexed the world and for which a satisfactory solution has yet to be found, problems which are intimately connected with the relation between money and prices and the maintenance of a stable standard of value, we shall find that no broad distinctions exist between the various forms of paper money. Not only so, but it will be found convenient for most purposes to group together coin and paper money, and for this reason the term currency is generally used to denote the whole of the circulating medium by means of which debts are paid and prices are measured. It is synonymous with money in its broader sense, and contains the two subdivisions of the coinage and the paper circulation, that is, bills, notes, cheques, postal orders and similar forms of money.

To establish a satisfactory monetary system and to keep that system in a proper condition are tasks which have sorely tried many generations of statesmen and economists. Experience has shown that a debased or depreciated currency is a national evil of the greatest magnitude. The English Statute Book bristles with harsh enactments designed to repress these evils, and nearly all of them failed entirely to have the desired effect owing to ignorance of the proper principles which should govern a monetary system. In the time of Blackstone counterfeit coining was treason, the most serious crime in English law, while even as late as 1832 the penalty for counterfeit coining was death.

The functions of money are three in number. It acts as (1) A medium of exchange;

(2) A measure of value;

(3) A standard of value for deferred payments.

To consider the first function; without a medium of exchange mankind would be reduced to the expedient of bartering goods against goods. English history shews abundant traces of this cumbersome form of payment. The manorial system was based upon it. In the Middle Ages money was very scarce in England outside the towns, the villein was in nearly all cases paid for his services in goods, and rent took the form of a proportion of the yield of the land, paid in kind. Needless to say it is far too cumbersome a system for commercial nations, and severe limits were placed upon its use in England by the Truck Act of 1831, which forbade the payment of workmen wholly or in part by goods, a method of payment which had proved capable of great abuses.

Secondly, money acts as a measure of value, and it is necessary to warn the student against any mis-conception of the meaning of this latter term.

Value and utility are based upon two very different sets of ideas. Value is not absolute, but always implies a ratio - a relation to another article or articles. The utility of an article on the other hand is simply its power of supplying the wants of mankind, a vague power which cannot be measured. Such terms as "intrinsic value" should be used with extreme caution, or they will cause great confusion of thought.