In a community where there is this complex division of labor and where the whole economic life is based on the use of money, saved income available for investment appears in the form of money funds. Without attempting at this point to analyze further the exact nature of such loanable funds it may be said that their amount depends upon the money value of the wealth that has actually been created and that still exists as a part of the community's store of possessions. This necessarily follows from the sole serviceability of money as a medium of exchange. The prospective borrower of capital appears therefore first as a borrower of money funds. It is, of course, conceivable that a borrower of capital - say a shoe manufacturer should go to the several producers of machines, raw materials, etc., and borrow from them the machinery and supplies necessary to increase his output. But such a method would be intolerably clumsy and time-consuming, and would limit to a comparatively narrow field the process of borrowing and lending capital. It is much simpler and much more expeditious for a borrower to go to a lender of money - or of its equivalent, credit - and to borrow from him the sum needed to purchase the various capital implements required. This is, of course, the practice that obtains in all advanced communities, and what we broadly speak of as the money market is for the most part really the "capital" market, the market, namely, where the "savers" are brought into contact with the "users" of capital.

Social interest requires the speedy and constant use of available capital implements

The sale of capital goods depends upon the existence of available money savings

To the users of capital we give the name "entrepreneurs" or enterprisers. They borrow capital in the form of liquid money funds and then devote the sums borrowed to some productive use. They buy machinery and supplies, hire labor and rent land. They then organize these factors in further production of wealth. The prices they have to pay for the several factors are normally fixed for them by market conditions. The same may be said of the prices obtained for the finished product. The risk of loss that is necessarily involved in such an arrangement must of course be borne by the entrepreneurs, but theirs also is any profit that may arise.

The borrowers who use funds for further investment are called entrepreneurs

The importance of the control of capital to the entrepreneur increases as production becomes more roundabout. More wealth is tied up in plant and equipment and in raw material. Wages must normally be paid before the sale of finished product brings in any return. Credit is usually extended even when the finished products are marketed. All these things and others involve the tying up of the entrepreneur's resources, and require more and more of such resources. Such needs exceed for the most part the entrepreneur's capacity to supply them, but even though that were not necessarily the case, the needs are normally inconstant and intermittent and it would not be economical for him to try to supply them entirely himself. With the growth and extension of the "roundabout" process, then, the tendency is for the entrepreneur to become increasingly dependent upon others for the control of the capital necessary to permit him to begin anew, or to continue, any given line of wealth production.

It is to society's interest also that he obtain this capital. Inability to regain control of capital tied up or surrendered means for the entrepreneur a restriction of productive capacity, and consequently for society a limitation of the output of wealth. No entrepreneur, who through the control of additional capital could make a substantial net addition to the community's output of wealth ought to be prevented for any length of time from obtaining such capital. If capital is available but is withheld society loses more than does the entrepreneur.

In a money economy, however, obtaining the control of capital is, as was indicated above, a question of obtaining control of money funds, and the heart of the broad social problem of getting the saved capital into the hands of active producers with the least possible delay is to be found in the gathering together of loanable money resources and the distribution to the highest possible social advantage of such resources among producing entrepreneurs. And it is just in this connection that we must seek the function of a country's banking system. The stimulation of saving, the gathering together of the amounts saved, the promotion of productive investment and of the rapid utilization of the resulting capital implements suggest the main outlines of this function.

Modern industry necessitates the tying up of much capital

Social interest demands the speedy release of available capital to entrepreneurs

General function of banking

The banking function as a part of the process of wealth production is, however, a broad one, and a treatise that aimed to discuss the subject in all its breadth would have to deal adequately with all the different types of banking. From the point of view of this treatise three general types of banking may be distinguished, namely savings, investment, and credit or commercial banking. It is not maintained that rigid lines of demarcation can be drawn between the different types, but the differences between them are great enough to have won a general recognition both in theoretical discussion and in practice.

It is the function of savings banks to mobilize funds temporarily not needed but requiring to be kept in semi-liquid form. The typical savings bank depositor is one who has a temporary surplus on which he wishes, if possible, to earn some return, but which nevertheless he regards it as necessary or desirable to preserve in an easily redeemable form. The money in the savings bank is accumulated for the Chistmas expenditures, for the new home, or for some other such special object, or it is accumulated for the general purpose of having a fund available in case some unforeseen emergency arises. Under the circumstances, it is not necessary for the savings bank depositor to have his deposit payable on demand. He is usually in position to give some notice of the intention to withdraw all or a part of his deposit.