This process, of course, implies that the man who deposits the debts to collect does not himself buy as much as he has sold, for in that case the banker would have nothing to lend. The counter-cheques at the Clearing House would be those of his own depositor; he could not, in such a case, seek out a borrower and earn a profit on a loan wanted by him. This would not be banking, but only a mere collecting agency. It is because the farmer does not buy to the full value of the corn he has sold that the banker has the means of authorising the merchant to buy tea; in other words, to exchange corn for tea. The cheques given for the corn appear at the Clearing House in favour of the banker; against them there are the cheques drawn by the farmer for what he has himself bought, and the other cheques which the tea-merchant drew on the banker upon the authority given him by the latter. These two sets of cheques drawn against the bank will not* equal the cheque paid in to him by the farmer; he will reserve a portion to remain at the bank in cash. Of this more presently.
The nature of banking now stands completely revealed; through its agency corn has been exchanged for tea; that was its function. Each of these articles has passed into different hands; the bank was invented to perform this service. The two substances, corn and tea, and two debts - one due to the farmer, the second due to the banker - constitute the whole affair. Thus we learn that a bank is an intermediate agent, worked, in every case, by two persons, such as the farmer and the tea-merchant, and so, in actual reality, Ave obtain the definition, a banker is a broker between two principals. In our supposed case one principal is the farmer. He has sold corn, this gives him power to buy. A part of that power he himself exercises by purchasing supplies for his farm; the remainder he does not require to use, say for three months. He might lend this surplus power himself to some borrower who applied to him personally, but he prefers to employ an agent called a banker, and requests him to select the man to whom this purchasing power shall be lent for three months. This the banker undertakes to do, and selects a tea-merchant who wants to buy tea, but has not the means to do so ready at hand. Thus the true lender is the farme; the banker is his broker, who finds a borrower, and puts him into direct connection with the farmer. The banker is a broker between the two principals, the farmer and the tea-merchant, and the article corresponding to sugar in Mincing Lane, of which the banker is the broker, is purchasing power, lodged in a debt to collect. There need not necessarily be a shilling of money engaged in the whole affair, though many shillings and pounds may have been mentioned in it.
The great value of this definition of banking consists in its bringing out the most characteristic quality of the banker, that he is only an intermediate agent. His sole action is, like a coin, to place property in different hands.
This analysis further teaches us the cardinal truth, that the great events of banking, the abundance or scarcity of its resources, its ability to assist trade, low or high rates of discount, panics and crises, are to be found, not in banks and bankers, but in the state of the wealth of the country, and in the effects which it produces on the two principals whom the bank has brought together. There is no truth in banking and the money-market more central than this, none that requires to be more deeply impressed on the mind of every trader and every banker. Yet the part which the banker proper plays in banking is vastly important. He it is who selects the men into whose hands the wealth moved by his agency is to be committed. He neither created the wealth which his depositors sold, nor does he touch that other wealth which his borrowers purchase; but it signifies immensely to what sort of borrowers he gives the means of buying, by empowering them to draw cheques upon his bank. On him mainly depends whether the men who acquire the wealth of the nation will employ it wisely, and preserve it by making use of it as capital in processes which reproduce its consumption, or to men who will waste and destroy it in prodigal expenditure, or in unskilful trade, or in reckless speculations in mines, or in making railways in the wilds which cannot for a long period of years reproduce to the country the food, clothing, and materials which their construction consumed. This is the sole range of the banker's action - his selection of the men to whom the country's wealth shall be entrusted; and it is a mighty one. He possesses no capital, though all commercial and monetary literature ascribes capital to bankers. Lines and names in their ledgers, cheques at the Clearing House, debts due to depositors, debts due to the bankers by those who obtained from them loans and discounts, are not wealth nor capital. Incorporeal property is a pure fiction, except as a legal right - that is, a collection of words, spoken or written, which will persuade a Court of Law to order the Sheriff to put goods, substances, into the possession of a particular man. If a title-deed to wealth is the wealth itself, if a mortgage on an estate is the estate itself, then commercial science and Political Economy should be thrown into the waste-basket at once as worthless and time-wasting nonsense.
But, it will be said, when bankers' balances are described as capital, all that is meant is that unemployed capital in the nation, seeking employment, is abundant or scarce. Then why use false and misleading language? Does not Political Economy groan enough already under the load of common words needlessly travestied? Why fix attention on the banks as the actual owners of capital, instead of on their two principals, the farmer and his brother-depositors, and on the causes which may determine them to place a larger or a smaller part of the proceeds of their sales in their banker's hands, and on those who have acquired possession of wealth by the purchasing power lent them by the bankers, whether they are increasing or diminishing the wealth thus put at their disposal? This is a most serious matter; for on it depends whether currency and banking will be ever understood by the world. Those whose ears are filled with this kind of phraseology will rarely be acquainted with the forces of the banking world they live in.