We have now finished the discussion of currency in its strict and technical sense. We pass on to another agency for carrying on the great work of exchanging wealth, for exchanging goods made to be consumed by men other than the makers - to banking. As currency has no other function than this exchange of wealth, it follows that banking and currency are two different machines for performing the same work. The bank and its great instruments, the cheque and the bill of exchange, transfer the ownership of wealth from one man to another. But banking is not currency, and hopeless confusion must result if it is regarded as currency. Indeed the mixing up of currency with banking, by referring to currency as the cause of many of the most important events in banking, is to this hour the fatal source of the unintelligibleness of that really simple matter, currency. The practice of banking leads to a vast diminution in the use of currency, in the quantity of coin and banknotes employed; but they are essentially different instruments, precisely as a plough drawn by horses is a different tool from a spade worked by a man, though they both perform the same service of digging up the ground. What, then, is a bank? In what does it deal, for it is a trade? It might appear that these are extremely hard questions to answer, for in what book or speech have they been ever answered in precise and unmistakeable terms? Certainly bankers are not the persons to ask what they deal in, as one might ask the same question of a grocer. Everybody replies - A bank deals in money; people take money to a bank and procure money from a bank - what can be clearer? A banker deals in money as a grocer deals in tea. But is that so? A bank that issues bank-notes beyond doubt so far deals in money, but the issuing of banknotes is a function superadded to banking; very few banks issue notes. One has only to consider that nearly one hundred millions' worth of banking operations - that goods are bought and paid for through banks to this huge amount in London alone without a single sovereign or a single bank-note being touched - to perceive that money, true money that is handled and counted, is not the staple which a bank deals in, although, like every other business, every bank does touch a small proportion of money. To say that a bank deals in money is one of the most unreal assertions that can be made. It compels the man who gives such an account of banking to call a cheque and a bill money, and if these are money, then farewell to any possibility of understanding what money is. Long ago I stated in Preiser's Magazine that probably not more than I in 30 of an ordinary banker's receipts consisted of cash, of coin and notes.

This conjecture received a very remarkable confirmation from an analysis made by Sir John Lubbock of a sum of 19,000,000 paid in to his banking firm in the City. It was composed of 3 per cent only of the receipts were paid in cash, and coin constituted only 1/2 per cent, or 1 in 200, of the whole sum. Sir John Lubbock's bank has not cash, money, for its staple, for the article it deals in. If that bank does anything, it is not with sovereigns and banknotes that it does it. It handles some cash, no doubt, but so does every trader and every man in the country. To use money furnishes no indication of a man's business; the cash handled by the cashier of a banker is only his small change; it tells us nothing about Sir John Lubbock's business. If we wish to learn what that is we must look to the big item in his statement, the 97 things which make up the bulk of his receipts. Here we find the commodity in which he trades - bills and cheques - some of which he receives, some he pays. To understand the banker's profession, we must know about bills and cheques, what they are, where he gets them from, what he does with them, how he earns a profit out of them, when they are abundant and when scarce, and what makes them abundant or scarce. Many would say that they are easy to understand, that they represent money, but I decline to accept the word, represent, in currency, for I cannot understand its meaning there, nor, as experience has taught me, does anyone else; it has no definite meaning for anyone. To say that bills and cheques represent so much money no more tells me what they are than when I hear so many sheep and oxen described as representing so much money, do I learn what sheep and oxen are. Papers which promise or order money to be given, if that is the sense of "representing," cannot be money itself; a promise of a thing does not give it in hand. The thing, the property, is absent. Cheques and bills may do the same general work as money, but so do spoken words, which may purchase goods and bind a man at law just as firmly as the written cheque. What, then, are they? Orders to pay money which can be legally enforced, title-deeds to money which can insist, under peril of a Court of Law, on receiving true money, but which are no more money than those other title-deeds to money which are contained in the accounts of a shopkeeper's books. Cheques and bills say to a banker or merchant - You owe me money; instead of paying it to me, pay it to the man who brings this piece of paper to you. A cheque on a bank implies a debt due by the banker, or a willingness of the banker, when there is no debt, to make a loan of a sum of money; a bill is an admission by the acceptor that he owes money and will pay it on the stipulated day.

Cheques and bills, .


Notes, ....


Coin, ....



These are the things, the 97 out of 100, which a banker receives; they are the articles he deals in. He deals in debts; he receives debts, and his business is to collect payment for them; his customers bring him their claims to collect on their behalf. So far the business of a banker is identical with that of a clerk sent round by a great shopkeeper to collect his bills. The banker touches no money worth mentioning on the side of his receipts; if he handles money, it must be when he gathers up the payments due on these cheques and bills. From his customers - called depositors - he gets only 3 out of 100 in money.