Mr. Merchant: To simplify the matter, so that we can follow it through to the end, I suggest that we begin with the unit of a banking system: the bank as we know it today, the individual, independent bank, and note just what changes we should make in the organization of a bank, to make it the perfect and complete machine that the people demand, that they may be served as well today as they were in certain sections of the United States before the war.
Mr. Banker: That's a good idea; indeed, the only way to be thorough, and get results. As was pointed out last Wednesday evening, banking today consists of four distinct functions.
A COMMERCIAL BUSINESS
A SAVINGS BUSINESS
A TRUST BUSINESS
A NOTE ISSUE BUSINESS
First: The commercial business: The use of capital in the production and distribution of consumable commodities—food and clothing and all the incidental tools and machinery.
Second: The savings bank business: The accumulation of the money saved by the working people of the country. This is distinctly a trust fund, and belongs to the investment fund of the country, and should be treated or handled as such.
Third: The trust company business: The execution of wills, and the care of estates; the execution of mortgage trusts, such as railroads or corporations create; the representation of others in the capacity of agent or attorney in the complicated business affairs of today; all such funds are of a distinctly trust character, and the investment of the money accumulating and growing out of such transactions in many of the states are specifically provided for by statutes. Such business cannot be included in the commercial affairs of the country, economically speaking, because they are essentially trust transactions, and the funds, generally, belong to the investment class.
Fourth: The note issue business: The provision of all the currency of the country, except the gold coin and gold certificates, which, while they constitute all of the money of our country, are also used for currency; and except the subsidiary coin and token coins of the country.
True bank credit currency is economically identical with checks upon deposits held by a bank. The bank note is the check of the cashier against the credit of the bank, while the deposit check is the check of the depositor against the credit of the bank. The bank note, for the convenience of the people, is always in even amounts, and passes without indorsement, while the check of the depositor is for any amount, odd or even, that may be involved in a transaction, and almost universally passes only by indorsement.
The people have just as much right to demand that the banks provide them with a true bank currency, as to meet their checks in any other way, by cash payment or by draft on some distant city.
Some people have the very erroneous idea that a bank is creating money when it issues bank notes. It is doing nothing of the kind; on the other hand, it is only doing something for the convenience and accommodation of its customers, and serving the public in the matter of protecting its reserves and so strengthening its credit by increasing its reserves against its deposits.