bullion showed the slightest tendency to exceed coin in value, that would be anticipated by melting coin down into bullion. These two processes make it practically certain that, so long as the government can maintain its policy, gold coin and bullion will be identical in value.

Token currency. Gold is the only form of money now in circulation in the country which is actually standard money. The exchange value of a silver coin is much greater than that of the metal of which it is made. The same is true of the nickel and bronze, and conspicuously true of the paper. The general name applied to these other forms of money is token currency. They are accepted in exchange not because of the value of the material of which they are made but because they stand as tokens, or representatives, of some other form of value. With the currency certificates, gold certificates, and silver certificates this is perfectly plain. The certificates are merely tokens representing that which has been deposited. With the bank notes it is equally plain, because the bank agrees to pay other forms of money. Even with the silver coins, while there is no direct agreement to exchange gold for them, the practice prevails. In addition to this, and quite as important also, is the fact that the government itself receives all these forms of currency in payment of obligations to itself. Thus, you can pay your taxes, you can buy postage stamps, you can pay customs duties, and any other obligation which you owe to the government, in these other forms of currency. Technically the United States notes, or greenbacks, are not legal tender for payment of customs dues, but as a matter of fact they are receivable. By legal-tender currency is meant any currency with which you can pay a debt and compel the creditor to take that or nothing. You can offer, or " tender," him the amount of the debt, and he cannot demand some other form of currency. Most of our forms of currency are legal tender for any amount, except our smaller coins, which are legal tender for only limited amounts. They thus represent in that indirect

sense a real value, or they serve these valuable purposes for their possessors. In the third place, some of them are declared to be legal tender; that is, you can pay your debt, not only to the government but to anyone else to whom you owe money, by offering various forms of token currency as well as by offering gold.

The question has frequently been raised, Why use such expensive materials as gold and silver for money? Would not some cheap substance, such as paper or aluminum, serve equally well? Many long and heated controversies have been waged over this question. The so-called "hard-money" school have taken the position that the government cannot make money, it can only stamp money. The stamp merely serves as a certificate of its weight and fineness; the market itself must then determine its value. The "soft-money" school, on the contrary, have pointed to many historic instances in which cheap materials have actually served as money and circulated at a value which bore no relation to the value of the substance of which it was made. The truth seems to be summarized as follows: I. Long-established customs, in a country such, for example, as China, where custom rules supreme, may enable a kind of money to circulate at a customary value regardless of the commercial value of the material of which it is made. 2. A government which is in the habit of using a great deal of compulsion, as in Germany, over a people who are in the habit of submitting to authority and compulsion, may by its own decree cause money to circulate at legally established rates without regard to the commercial value of the substance of which it is made. But a government which is not in the habit of exercising a great deal of compulsion, and a people who are not in the habit of submitting to it, have to rely mainly upon voluntary agreement among individuals in most of the relations of life. 3. Where voluntary agreement rather than government compulsion is mainly depended upon, it has hitherto proved impossible to get people to voluntarily agree

upon any substance as the material for standard money except something which had a value as raw material commensurate to its value as money. 4. Cheaper substances may, however, be used in limited quantities as token money even in liberal countries where everything is done by voluntary agreement, (a) when standard money will be exchanged for it; (b) when the government will accept it in payment to itself; (c) in small quantities when the government exercises its authority by compelling a creditor to accept it in payment of a debt when offered by a debtor. This, however, is an exercise of compulsion, but it is one to which many even of the liberal govern

ments resort.

CHAPTER XXV

BANKING

Need of institutions to deal in credit. In view of the fact that credit supplies so important a part of our circulating medium, it is natural that a special class of institutions should arise which deal primarily with credit. These institutions are called banks. The term bank originally meant the bench before which the money changer sat, with his coins stacked up before him. When he failed in business, his bench was broken up, hence the word bankrupt.

Receiving deposits and making loans. The original business of the bank was ostensibly to deal in money, but out of this has grown the business of dealing in credit. Lombard Street became the banking center of London, from the fact that it was occupied by goldsmiths from Lombardy. They had to have safes in which to store their valuables. During the turbulent times of the sixteenth and seventeenth centuries certain worthy Londoners used to deposit not only their valuables but their money with these goldsmiths for safe-keeping. Having so much money on hand, the goldsmiths began gradually to lend out small sums, always taking precautions to keep enough on hand to meet the demands of depositors whenever they were presented. This business of receiving deposits and making loans, which is the essence of all banking, eventually became more lucrative than the trade of the goldsmith. More and more, therefore, they gave up their original trade and became dealers in money and credit; that is, receiving deposits and making loans. These two things are still the fundamental purposes of a bank. The depositors came to recognize the

legitimacy of this business, and it became respectable and well established, and is now one of the most important of all forms of business.

Making money more active. While, as stated above, the essential work of a bank is to receive deposits and make loans, by doing these things it performs certain important functions in the national economy. One of these functions is to take money which would otherwise have remained inactive and put it to work, thus making it active. The individual who has a fund of purchasing power which he does not care to invest for the time being may deposit it with a banker; someone else who has an opportunity for investment, that is, for the active use of capital, may go to the banker and borrow it. The banker is therefore the middleman who stands between the one who has money to spare for which he has no immediate need and the one who has a need for capital which he does not possess. Without the banker these two men might have difficulty in finding each other. The banker at least saves them time and trouble. It is very much the same function as that performed by any other middleman. The producer of material products does not have time to peddle his goods among consumers, and the consumer does not have time to search for a producer who has for sale exactly what he wants to buy. Both go to the merchant, the one to sell his surplus, the other to buy his supplies. The merchant saves both of them the trouble and earns an income in return for the service which he performs.

Savings banks. The depositor may prefer to leave his money on deposit for a long time or for a stated time, or he may prefer to deposit it on condition that he may withdraw it at any moment when it suits his convenience to do so. The former class of deposits are commonly called savings deposits, and the latter, deposits subject to check. The savings banks are a special class which receive savings deposits, whereas the ordinary commercial bank receives deposits subject to check.