The demand of the banks' clients is the important factor

This demand is socially and not individually determined

An attempt to analyze carefully the social circumstances that are of importance in this connection would take us far afield. The various social activities of a human community are so closely correlated, and the reactions between them are so comprehensive and so complicated that it is virtually impossible to take one set of such activities and to explain them as isolated phenomena. A full explanation in any case would require a complete sociological survey. No attempt will therefore be made to set forth all the circumstances that are of weight in determining the form that bank credit takes in any particular community, but attention may be given to a few of the broader and the more obvious factors.

Mere habit and tradition may first be mentioned as one of the more important of these social factors. Of course habits and traditions themselves do not spring suddenly into being. They grow up in the first place because particular lines of conduct, or reactions to stimuli, are shown by experience to be best suited to a given situation. They are then repeated whenever a similar situation presents itself. In their inception all that we include in the term "natural environment" plays an important role, and while habit and tradition may themselves be considered a part of the "social environment" it must be recognized that their development is greatly influenced by other elements in that environment. But when habits have once been formed and when traditions have once been established, the situations that mainly occasioned them may undergo widespread modifications without seriously affecting the habits and the traditions themselves. Hence, if a community as a result of early experience has cultivated an habitual preference for hand to hand money for purposes of exchange and of storing value, it is difficult, in spite of obvious advantages and inducements, to get its constituent members generally to adopt the system of deposits and checks. The new habit has to come slowly. Thus the German Reichsbank, as already stated, has systematically encouraged the use of the check, but the early preference for hand to hand media was, at least up to the outbreak of the Great War, being only slowly overcome. At that time the deposit liabilities of all the banks in the German empire were hardly equal to those of the banks in New York City alone.

This is very complex

Habit and tradition are of first importance

Another broad circumstance of much importance in the development of the credit system is the character of the community's economic life. In an agricultural community where exchange operations are relatively few, and, in the average case, on a small scale, there is not the inconvenience attached to the use of hand to hand money that would attend such use if the amounts involved were large and if the volume of exchanges were great. Indeed, in paying off the farm hands and in doing the town shopping the farmer finds a positive advantage in hand to hand money. But in a manufacturing and a commercial community where transactions are on a large scale, where the process of production is continuous, and where the number of exchanges is vast, hand to hand money would offer so many difficulties that it would be almost impossible to conduct business on the prevailing scale if such hand to hand money were, in the absence of checks and deposits, the sole reliance as a medium of exchange. As economic conditions vary the relative demand for the different media of exchange is likely therefore to be variously distributed, and the development of the credit system will be affected accordingly. In general it may be said that as population increases in density, and as acquaintanceship and mutual understanding broaden, as production becomes more continuous, as exchange operations become more frequent and regular, and as the amounts involved become larger, and, finally, as banks themselves become more accessible, the situation as a whole tends to become increasingly favorable for the development of the deposit and check system.

Next in importance is the character of the economic life

Still other social factors that deserve mention in this particular are the code of business morality, stability of government and political security, the enforcement of law and the administration of justice. It ought not to be necessary to elucidate these in detail. The use of bank checks as instruments for carrying on exchange is, as we know, vitally dependent upon confidence. Anything tending to preserve or to intensify this confidence tends at the same time to facilitate the employment of deposits and checks. If the code of business morality is such as to put a high premium on honesty and fair dealing and a corresponding stigma on misrepresentation, failure to meet just obligations, etc., it makes possible a higher degree of confidence than could prevail if the moral standards of the business community were lower. Similarly, stability of government and political security are vitally essential to general confidence. How destructive to confidence and general economic prosperity instability of government and political insecurity can become was forcefully exemplified by the situation in Mexico during the recent disorder. Again, whenever a war scare has developed in Europe the peasants have systematically withdrawn their savings from the banks and have hoarded them, preferably in gold, in secret places at home. Lastly, the enforcement of valid contracts, the assurance that justice will be done in cases of misunderstanding or of conflict of rights, the protection of property, the maintenance of peace, and the impartial and prompt enforcement of the law are usually indispensable to the preservation of confidence. Nothing is so destructive of confidence as anarchy and disorder. In times of turbulence banks close their doors, trade and industry are disrupted, and the consequent fear and uncertainty destroy the very possibility of credit. Moreover, governmental oppression and injustice have the same effect. It is only in communities where governments are not only strong but just, that a delicate flower like credit can take root and come to bloom.