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as the cotton broker transfers the cotton of the American merchant to the hands of a Manchester manufac turer, so the banking broker transfers the property of a lender to the disposal of a borrower. What the banker has to transfer, his power to act, comes from his depositor; he passes it on to his second principal, the borrower, to whom he decides to entrust it. The conduct of this operation constitutes a business, a trade; and the question immediately arises, What is the article in which a banker deals? what is it that is deposited at his bank? what is it that is lent by him and borrowed?

A banker deals in money, all the world replies. People take money to a bank, and procure money from it; what can be plainer? Nothing can be more untrue. A bank does not deal in money. It touches per cent, ten shillings only in coin, in true money, of all that it handles. If notes are included in money, 3 per cent., Sir John Lubbock tells us, is all the cash that it receives. Every week in London alone, banking operations are accomplished at the Clearing House—that is, buying and selling of goods through banks to the gigantic amount of one hundred millions sterling; and yet not one farthing of money has been passed or handled. If we take banks in places in which there is no Clearing Houses, a little more cash will be used; but all over the country the great buying and selling of the people is carried on by cheques. Debts of every kind are paid with cheques; hese cheques are placed to the accounts of the re;; they in turn draw upon these accounts; and so nsfer of commodities, the purchase of merchanof domestic wants, is effected for all but trifling

ready money payments, without setting a shilling in motion.

This is banking; and the vital question remains-What are these ninety-seven things which a banker receives, and with which he does all his work? In direct words, What are deposits? Debts to receive; and this is an answer which goes down to the very root of banking. They are orders to receive money, which the debtor is bound by law to pay at the time specified. But they are not money; an order to pay money, a written request to pay coin, is not the coin itself. To call it coin or cash is a pure absurdity. A man who deposits a cheque with his banker asks him to collect for him a debt due by another banker. A cheque on a bank implies that it owes money; and it is an instruction from its creditor to pay it to the holder of the order. We thus discern what the ninety-seven parts of a bank's receipts are composed of; they are debts to collect on behalf of its depositors. How, then, are these debts paid? In money-which the banker can demand? By no means. These debts are paid by reckonings in account. If the bank is in London, they are sent to the Clearing House, and figure as items to the credit of the sending banker. If in the country, the banker who is to receive them from the bank drawn upon probably has counter claims to pay, and the balance alone passes. Otherwise they are paid in notes

-but these notes move about with marvellous rapidity, and at the end of the day, there are many changes in many accounts, but the cash in the town remains the

same.

The next question, and it is a most critical one, is—

how came the depositor to have a debt to give to the banker to collect? In answering this question, it must be carefully observed that we are speaking of the first appearance of the deposit in the banking community. We must not introduce here mere movements between banker and banker, shiftings of deposits from one portion of the money-market to another. The deposit, then, at its origin, arises from the sale of property, from nothing else. The man who gives a cheque to a banker has previously sold something. If he be a receiver of rent or an owner of dividends or consols, the fact equally holds good. The farmer has sold for the owner of rent his share of the wheat and hay which comes to him as landlord, or the public has sold goods wherewith to pay the taxes imposed for the National Debt. There is no exception whatever; the resources of banks, at their origin, come from goods sold. On the other side the counter cheques at the Clearing House denote goods bought.

The course which the operation takes is now clear. A manufacturer has sold 1000 tons of iron, and has been paid with a cheque, which he, by lodging it with his banker, requests him to collect and to place the amount to his credit. Now, if the iron-master draws out the sum due on this debt as soon as paid, the banker becomes a mere collecting clerk, and true banking, as it actually exists, would not come into being. But another fact makes its appearance. The manufacturer will not want for three months, say, the proceeds of 600 tons of the iron sold. He will draw for the present one cheque only on the bank for the purchase of coals up to the value of 400 tons, and this the banker knows. Now

mmences his specific action. He knows that he has

at his disposal the proceeds of 600 tons of iron sold; he resolves to lend them for three months to a sugar merchant who had brought him a bill for discount, and seeks to obtain the means of buying. Give me your

bill, says the banker, I will place the amount to your credit, and draw upon me to that extent. The result is a purchase of sugar. This simple statement unfolds the real nature of banking. The banker appears here as an intermediate agent, as a broker, who finds for his principal, the iron-master, another principal who will employ his means in buying sugar. Not a shilling of money or cash passes in the transaction. The sales of the iron and of the coals and sugar meet at the Clearing House and settle each other there. The iron is paid for with coals and sugar; in economical language, iron is exchanged for coals and sugar. The banker is a mere go-between-a broker; it is the iron manufacturer who is the real lender of sugar to the merchant.

This analysis tells us what it is that a banker deals in. What tea and sugar are to the grocer, purchasing power is to him. That is his staple; the commodity which constitutes his business. This power consists in

the fact that the man who has sold can, by that very act, buy also; the goods he has parted with give him, directly or indirectly, the power of obtaining others in exchange. The power is transferred by the depositor to his banker; the banker passes it on to his borrower. The sugar merchant can buy because the iron-master has sold. It is the possession and sale of goods by his depositors which enable a banker to carry on any banking. Banking is an affair of goods, of goods transferred and not of coin or cash, except as machinery, and that

in winter. When winter comes, the sovereigns and notes in excess flow back into store, and there is no alteration of value for those which remain out. But inconvertible notes cannot relieve themselves in this manner. They must stay out in circulation; they must be in excess at such seasons, and down sinks their value, and the worth of the guarantee they give. But much more yet; the issues cannot be prevented from causing them to be always in excess, and which is yet worse, increasing excess, whether actually or prospectively.

And now for the consequences. The law of supply and demand asserts itself here, as everywhere else, in Political Economy. Too great a supply means fall of value. People find that they have more notes than they want. To get rid of them, they make a sacrifice of value; they consent to reckon them for less than their nominal worth when making purchases of commodities.

But what does such a depreciation mean? That every creditor is injured who is compelled to take them at par, and every debtor unjustly benefited at the creditor's expense. The prices of goods in every shop are raised to meet the defective value of the notes. The shopkeeper is charged twenty-seven shillings in notes for what he would procure for a guinea in metal. Thus the creditor who had a debt estimated in guineas and received a one pound note and a shilling was nothing less than plundered. The magnitude of this injustice and wrong may be conceived if one thinks of what the holders of consols and other public securities would suffer if the pound received as interest stood in the same proportion to the sovereign as the note to the twenty-seven

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