Having analyzed the main activities of the modern bank and having examined the two forms in which its credit manifests itself we can appropriately consider the question of the importance of such activities in modern business life. In short the question is now raised, what good are banks anyway? Do they help society in the process of wealth production? Are they themselves producers? Or are they parasites reaping where they have not sown?

Banks were defined as institutions which receive deposits and which extend credit. In the simple process of receiving deposits apart from the further use that is made of them the banks render a distinct service to the community. In a society dependent upon exchange and upon the use of money, individuals, as has already been said, receive their income in the form of money. The proportion of this money income that is "saved," as we say, determines the amount of wealth that will be returned to society for further use in production. In the first instance then, for the purpose of adding to society's fund of capital it is important to facilitate in every possible way the accumulation of savings. Banks play a considerable role in this connection. They provide, usually free of charge, a safe depository for funds. That putting money in bank is a safer way of saving than by hiding it in an old stove or by burying it in the garden, is conclusively proven by experience in the past and by recurring experiences in the present. The chances of loss are less for money in the bank than for money kept at home.

Special banks like savings banks regularly pay interest on sums deposited. Ordinarily, however, they are protected by law from withdrawal without previous notice. Such banks can, therefore, tie up their resources in less liquid but more profitable forms of investment than the commercial bank, subject to heavy demand liabilities, could afford to consider for the investment of any large part of its funds. But commercial banks too pay interest on "special or time deposits" subject to withdrawal by the depositor only after an agreed notice has been given. Moreover, the custom of paying interest on average balances above a certain minimum is well-nigh universal throughout the United States. For years the payment of such interest was looked upon by conservative bankers as unsafe banking, and it is still so regarded by a large number, but the keen competition for deposits among the banks in the larger cities in time overcame these conservative scruples. But neglecting the possibility of interest on deposit balances the fact remains that through offering, usually free of charge, the opportunity safely to store a sum of wealth, subject to withdrawal on demand or after short notice, banks add to the security and convenience of saving. It may be said, therefore, that one of the services rendered by banks is to stimulate saving.

Are banks producers?

They safeguard savine-s

Another important service rendered by banks is to be found in connection with their more active functions. Credit, as everyone knows, has come to play a tremendous part in modern exchange. Some estimate that as high as 90% of our total exchanges are transacted by means of credit in one form or another. Professor Kinley 's estimate, however, is lower, namely from 60 to 75%. But these estimates do not include transactions settled by means of hand to hand money, most of which, in this country, is itself "credit money." Hence if the use of all credit media were for some reason or other completely abandoned, and the violent assumption were made that the same number of exchanges would be transacted, gold alone would have to be employed as the circulating: medium, and the amount of gold that would be necessary for this purpose on the prevailing level of prices would be many times the amount that is now actually employed. But gold represents a valuable part of the community's fund of capital. It is wealth which, by and large, is dearly paid for in human sacrifice. It follows, therefore, that the less time and effort a community has to sacrifice in order to acquire gold for transacting its exchanges the better off that community will be. The smaller the amount of gold necessary, the larger the sum total of other things that the community may enjoy. Banks, it was seen, supply media of exchange in the shape of deposits and notes, which when properly safeguarded, are normally as effective as gold itself. Indeed, it was shown that where there is no question about the security of these bank media they are preferred to gold because of convenience of handling, etc. As the amount of gold needed to maintain the acceptability of these bank media is only a fraction of the total amount of such media that may be made available by the banks, it follows that bank deposits and bank notes are not merely substitutes for gold but they are very cheap substitutes. It may be concluded, therefore, that by supplying a circulating medium that is a cheap substitute for gold banks make possible a heavy saving in the direct use of the community's capital.

They stimulate saving

They permit society to economize in the use of capital

Furthermore, when account is taken of the conditions under which bank media are brought into being it will be seen that banks render even a more significant service. They promote the productive employment of the community's free capital.

The present-day economic organization of society has already been spoken of as the "money economy." Direct production has given way almost completely to indirect production, namely production for a market under a system of money exchanges. What producers take into account is the money value of their goods and services, each striving to get as high a money return as possible.

They promote the productive investment of savings

Modern production in terms of money

Thus virtually everybody receives his income first in the form of money or the equivalent of money, and this is then apportioned among the different economic goods which the individual considers essential or desirable for his happiness, and which, taken together, constitute what economists call the "real income."