of business ability. Hence there will always be men with (b) Again, there are those who have considerable incomes the surplus of which, above their expenditures, it is impossible to invest in their own business. Lawyers, physicians, literary men, teachers, artists, and many others are included in this class. Widows and children are often left with property sufficient for their support, if it can be properly invested; but they cannot usually carry on business themselves. If their property can be safely loaned, both they and the community will find advantage in such a disposition of it. (c) Finally, as men advance in years, they are less capable of superintending an extensive business. It is natural that there should be a contraction, rather than an expansion, of their enterprises. In some cases it is necessary for them to altogether retire. In either case it would involve the withdrawal of a part or a whole of their capital, which must lie idle or be loaned. 2. To the non-capitalist. (a) A man works with more interest, vigor, and success, where the enterprise is his own, than where it belongs to another. Then, too, he can adapt himself to his work as to time and circumstances, as he could not were he a mere journeyman. He will thus be likely to greatly enhance his production, both in quantity and quality. (b) Moreover, as we have seen, there are some men who have peculiar abilities of a high order for organization and management; which abilities, without borrowed capital, can find no good opportunity for exercise, and will thus be lost both to their possessors and to the community. (c) If each retains his own property as capital, there will be accumulations in a few hands and places; whereas, with a wise credit-system, capital will be diffused more widely, and will bring the producer and consumer, as the capitalist and the laborer, into easier relations to each other. 5. It thus clearly appears, that, by a judicious system of credit, the capital of a community gets more fully combined with labor, and production is palpably increased. It is to be recollected, that what is ostensibly borrowed and lent is money, but really it is material and implements. Thus a man desires to set up in the business of a blacksmith. He has simply the ability to labor, and the skill and intelligence, that fit him for his vocation. But he has no shop, no tools, no coal, no iron. If some one would lend him these, with the understanding that he might pay for them under stipulated conditions, and thus become their owner, it would answer all his purposes. Possibly in some cases this would be done; but generally he would borrow the money with which to purchase these. These are only some of the forms and advantages of credit. It must exist to a greater or less extent in nearly all transactions of men with men. The employer must either trust his workmen with pay in advance, or they must trust him till the work is done. In countless ways it ramifies through society, and aids in all the affairs of commerce as well as in the production of wealth. Without it, society could scarcely advance beyond the condition of barbarism. It is the essential element in all the great enterprises characterized by the combination and division of labor. In commerce, as in religion, "we walk by faith, not by sight." But we have to do with it here chiefly as supplementing the precious metals in the function of an instrument of exchange. As we shall see, credit, in one form and another, constitutes the larger part of this instrument. CHAPTER X. BANKS AND BANKING. 1. BANKS are institutions which serve to abbreviate and facilitate the business of exchange, by extending and rendering available the credit of the community. Of general banking business in ancient times, we have only meagre accounts. It is more than probable that something answering to our present system existed in several nations previous to the Christian era. In modern times, among the earliest financial institutions of which we have any account, were the banks of Venice and Genoa, chartered, the former in the twelfth and the latter in the fourteenth century, and continuing in operation till the beginning of the present century. The banks of Amsterdam and Hamburg began somewhat later, and are still in existence, having had a vast influence in the financial history of Europe. The Bank of England was created about 1692, and has been for more than a hundred years the most powerful factor in the commercial world. All of these institutions have been closely related to the governments of their respective countries. A multitude of minor banks have sprung up within the last two centuries, some of them of scarcely less note than those just mentioned. Banking is one of the most important occupations of our modern civilization. 2. The beginning of the modern system was probably something in this way: In communities where there was a considerable variety of industry, and there were consequently many exchanges, there would necessarily be greater or smaller accumulations of money in the hands of individuals. It would be found inconvenient, hazardous, or expensive to keep these in one's own possession. A strong-box, perpetual watching, and manifold precautions might secure safety. But it would naturally occur to practical business men, that one strongly protected place, under the care of a competent person who should devote himself to the charge of the treasures of his employers, would be, at least, less expensive than each individual's custody of his own valuables; and that it might be vastly cheaper, as well as more effective, for the whole community of business men to combine, and assign the guardianship to one man, than for each to exercise it on his own account. Hence would result a building, centrally located, with strong vaults, and other safeguards and securities, where each person having surplus funds would deposit them for safe keeping. It would not take long to learn that only a part of the money deposited would be likely to be withdrawn at one time. Hence a portion might be loaned temporarily. Experience and observation would furnish data for calculating how large this portion might be, and how much it would be necessary to keep constantly on hand. The part thus loaned. on proper security, and made returnable at short intervals, would be paying interest; which would be a compensation for the care of the money, and also afford a profit. Such a disposition of the funds would also be an advantage to the community, by keeping its capital more fully employed. An arrangement of this kind would have all the elements of a bank of deposit. 3. We see that credit appears as an important factor in use. this department of banking. It has a wider scope even here than has been indicated. The primary and natural process would be such, that, whenever a man had money to deposit, he would carry it to the bank, and the sum would be placed to his credit. Whenever he desired to use a portion of it, he would draw such a portion, and be debited with so much. But an abridgment of this process would come early into The depositor, having a debt to pay, instead of going to the bank, and drawing the money, and then paying it over to his creditor, would give the latter an order on the bank. The receiver might do one of three things with the order. He might draw the money; or he might deposit the order as so much cash, in which latter case there would be a transfer of credit from the account of the drawer of the order to that of its receiver; or, without going to the bank at all, he might hand the order over, as so much cash, to some one with whom he has dealing; and it might pass through several hands, paying as many debts, before finding its way to the bank, and even then being entered, up to the last holder's credit, without the use of any money. Usually, however, the order is carried to the bank by the party first receiving it, and is either paid in cash or placed to his credit. Such is the process of transfer of credits by checks. Much the larger proportion of the business of the banks and their customers in some communities is done in this way. Many wholesale firms in the cities, receive most of their payments for goods in drafts; they make their payments in the same way: so that comparatively little cash is used by them, though their transactions amount to thousands of dollars a week. Credit is thus made to greatly supplement money as an instrument of exchange. There is a still further development of this substituted agency, in the method of loan and deposit, which will be set forth hereafter. |