progress was made by discarding the less convenient and desirable form of money for that which better served the purpose. Gradually, too, progress was made in the methods of using money. When first used as money the metals passed by weight. (As a memento of that time we have the word expend, which means literally to weigh out.) Later, for the purpose of saving the trouble of weighing, and to remove the risk of fraud through the misuse of alloys, coining was invented.

SOME FUNDAMENTAL PRINCIPLES.

The purpose of your committee in reciting the foregoing is simply to illustrate a few principles important to be borne in mind in this connection.

1. There is a marked distinction between the use of money as a standard and its use as a medium of exchange or currency. In the former case it is used to compare or measure values; in the second it is used to transfer them. There is the same distinction to be made in these two uses of money that there is between the use of the scales for weighing a ton of coal and the use of the wagon in which the coal is delivered to a customer. Or, to use another illustration, and in some respects a better one, there is the same distinction between the use of money as a standard of value and its use as a medium of exchange that there is in the use of a bushel basket to measure grain and the use of that basket to carry the grain to the manger. Here the same thing may be used for either purpose. So it was originally with money. But we have learned that while there can be only one standard of size for a bushel we may carry bushels of grain in baskets or in sacks or wagon boxes. So it is with money. While in the nature of things there can be only one standard of value, the forms of money as a medium of exchange are many, including gold, silver, nickel, copper, and paper.

2. Á farmer would not think of keeping on hand as many standard bushel measures as he had bushels of grain to measure. He needs only enough to serve as an occasional test of correctness. And then for ordinary purposes he will suit his convenience by using sacks or other things. So with money. A nation would find it wasteful to have on hand a sufficient amount of standard money to effect all of its exchanges. It finds it more economical to keep on hand enough of the standards of value to afford from time to time the proper tests of the instruments of exchange, and then suit its convenience in the forms of its currency. 3. Governments adopt, they do not originate, standards. As has been seen by the brief sketch of the origin of money, its form was a matter of selection by those having exchanges to make, that this selection varied with the circumstances, and that the idea of a standard came from custom without any edict of the governing power. So it has always been; so it will always be. The edict of the government follows, it does not precede, the common individual judgment. When it fails to do so its decrees are futile.

4. The purpose of coinage is simply to make safe and convenient what would otherwise be unsafe and inconvenient. Coinage is not necessarily and probably was not originally a function of government. The word dollar is itself a memento of coinage by private individuals. The first thalers or dollars were made.at a private mint in Joachimsthal, in Bohemia, in 1581. In those troublous times princes and kings were playing fast and loose with their coinage, were putting into the coins less than the weight of metal certified by the stamp, and compelling people by legal-tender edicts to accept them as of full weight. The great

merit of the Joachimsthal mint was that the pieces or coins made by it were of uniform goodness. Thus they attained great popularity and wide use, and the thaler came to be known and prized all over Europe, In the early days of California, when it was more inaccessible than the uttermost part of the earth is now, private coinage was general. Individuals and companies refined gold and ran it into pieces of uniform size, stamping on each piece its weight, the pieces thus made being voluntarily and freely used as money. That is the essence of coining. Putting the metal into the form of disks or bars neither adds to nor subtracts from its value; it only adds to the convenience of using the metal. The only reason why, by common consent and then by constitutional and legal provision, we have the Government do the coining and forbid anyone making coins resembling those made by the Government, is to guarantee uniformity of goodness, thereby facilitating trade. The fact that the Government certifies the weight and fineness of the metal contained in the disk does not add anything to its value, except as putting the metal into pieces of convenient size and shape renders it easier and safer to use, and it thereby passes more promptly from hand to hand. Even those who know nothing of metallurgy or assaying feel safe in accepting the metal whose weight is certified by one known and trusted by all.

5. Every proper and safe method of facilitating exchanges, every improvement made, is in the interest of all, contributes to the public welfare.

ORIGIN AND PURPOSE OF BANKS.

It is risky to keep money in one's house; the money may be stolen. It is also risky to carry money around; it may get lost. For each person to build a strong room for the safe-keeping of his money would be too expensive. But by cooperation many may do cheaply what each alone would find a burden. So a number of traders united in erecting a building with a strong room in it. This they put in charge of one or more trusty men, and to it each evening they brought the receipts of the day. Such was undoubtedly the origin of banks. They were at first simply places for the deposit of money for safe-keeping.

After a while some bright merchant discovered that he need not go to the bank to get the money that he might desire to pay out. He could save time and trouble by giving the payee an order (or check) on the bank for the money. With this check the payee could get the money at the bank. Or, if he did not need the money for immediate use, he could deposit the check at the bank and get the amount transferred from the merchant's credit to his own, thus acquiring the right to order the payment of money to some other person or persons; or he could transfer the check itself to someone else with whom he had dealings. In any of these cases the check served the purpose of money; and inasmuch as it saved the time of counting and the trouble and risk of handling the actual money, the check became and still remains not only a great convenience but also a great economizer.

In course of time it was observed that only a part of those who received checks demanded the money on them, and that, therefore, by keeping on hand a quarter or less of the money deposited all the checks could be promptly paid on presentation. The managers of the bank therefore authorized the man in charge of the bank, in whose honesty and good judgment they had confidence, to lend out to responsible persons a part of the deposits. Thus arose banks of loan and discount.

Some of those who wished to borrow did not care to carry coin

about, but were going among strangers who might not be willing to take their checks. Such persons the bank could accommodate by giving them the promises of the bank to pay the money on demand. The bank being widely known and largely trusted, its promises (or bank notes) passed readily from hand to hand, performing admirably, by the free choice of those interested, all the work of money as a medium of exchange. Thus arose banks of issue.

It is vitally important at this point that it be remembered that a large fraction of all deposits are not deposits of money. In this fact lies the most valuable of all the many services rendered to the public by banks. Not only does a bank gather up the scattered sums of money in the community, furnishing their owners with a safe place of deposit, and securing to the community the use of money that would otherwise lie idle, but under a proper banking system the bank can monetize every product of hand and brain, facilitating and cheapening both production and exchange, and thus bettering the condition of every honest, industrious, and prudent man in the community. Suppose, for example, that a manufacturer of wagons has used up his capital erecting his factory and buying materials. He needs money to employ men to make the wagons. He goes to the bank; the cashier knows him to be honest and capable; knows that he wants the money to produce something of use to the community, something which the people will need and buy; sees that he has the plant and material; the banker lends him the money, thus giving him the means of making the product, furnishing useful employment to perhaps hundreds of people. The manufacturer deposits his note, getting in return a credit on the books of the bank, against which he can check for the payment of his men, the shipment of his goods, etc. As pay for the goods begins to come in he deposits the checks, drafts, or money that he receives. In this way he accumulates means to pay his note when it becomes due. The original deposit was his note-not money, but the representative of his raw material to be wrought by the skill of himself and his men into articles of use for the community. On the basis of property owned and skill possessed, the manufacturer secured the funds with which to work the transformation. This monetizing of products, this vitalizing of energy, is the preeminent service rendered by the bank.

BANK CHECKS AND BANK NOTES.

Bank checks and drafts and bank notes constitute by far the most important part of our currency. On January 1, 1898, the total volume of our circulation was as follows:

The volume of bank currency, therefore, was more than double that of the non-bank currency. Moreover, it did a vastly larger proportion of the actual work of commerce. Careful investigations have been made

*In national, state, and private banks. But this does not include deposits in savings banks, or any other deposits not subject to checks.

from time to time by the Comptroller of the Currency to determine the actual usefulness as currency of our various forms of money. The last investigation was made on July 1, 1896. It showed that of every $100 of business transacted through the banks the different forms of money were used in the following proportions: Gold, 60 cents; silver, 50 cents; greenbacks, silver certificates, Treasury notes, and national-bank notes, $6.30; bank checks, drafts, etc., $92.50. And the clearing-house returns of the country show that the bank checks and drafts constitute a currency which performs transactions in the exchange of property amounting to over $50,000,000,000 a year. And a great many checks, estimated at $20,000,000,000, are used as currency each year, which do not go through the clearing houses.

It is very important to note in this connection that a bank check and a bank note are practically the same thing. Both are obligations of the bank payable on demand, and both, without being legal tender, perform admirably the work of money as a medium of exchange. But, notwithstanding this identity, there is a great difference in the amount of service rendered, that of the check and draft being scores of times that of the note. This is partly due to the superior safety of payment by check or draft by reason of their being collectible only by the person named as payee and upon his indorsement, which indorsement becomes a receipt. But another element which reduces the serviceableness of the bank note is the legal limitations put upon its issue.

No one would object to a bank's receiving a deposit of $100,000, payable on demand by means of checks. Why, then, should anyone object to the bank's giving to the depositor, instead of a check book, its promises to pay the bearer on demand, if these bank notes will better serve the legitimate purposes of the depositors? For it should be understood that they may better serve him. Which of these two forms of the bank's demand obligation will best serve in a given case or community depends on the location of the place where the given business is to be transacted, the habits of the community, and the relations of the parties. Every person who accepts a check does so by reason of his faith in the person from whom he accepts it. This implies a knowledge of the character and standing of that person. But many times we must deal with strangers. In dealing with them we must use some form of currency whose value does not depend on anything personal to them or to us. In that case the bank note is much more serviceable than the check. Again the habits of the community have much to do with the relative serviceableness of the check and the note. In old, thickly settled communities, where banks have long existed and where the people have acquired the habit of making deposits and paying by checks, the use of checks will cover all large payments and will even be the medium used in more than half of the retail transactions. But in the new and sparsely settled parts of the country, where banks are fewer and less accessible, and where the people have not become habituated to deposits and checks, the bank note will be found the more serviceable form of using the bank credit. It seems reasonable, therefore, that the law governing the operations of banks should be of such character as will make it practicable for banks in all sections of the country to provide the form of currency which will enable them to best serve the communities in which they are located. As Professor Charles F. Dunbar well says:

It is of great consequence that the medium used should be made up of the kinds most convenient for the use of the community, and divided between those kinds in the proportions most convenient. This question of proportion is one which no com

bination of counselors, public or private, can determine. Left to itself, the country settles this problem of proportion in a natural way-by the demand which each individual using a credit currency of any kind will make for notes or for a deposit account, as his special conditions may require. But in order that this natural process should go on easily and without inconvenience to the community, it is requisite that the banks or bankers with whom individuals deal when obtaining loaus or receiving payments should have the ability to respond to demand in either form; in other words, that the creditor of the bank or banker should be able to receive the evidence of his claim in the one form if he expects to use it in large operations or in a closely settled community, or in the other if in small operations or where hand-to-hand dealings are the rule, and that the lender should find his profit equally in responding to either demand. It is only by being allowed to take one or the other form, as occasion requires, that a given mass of bank credit can perform its functions with the maximum of public advantage.

WHY THERE ARE LIMITATIONS ON BANK-NOTE ISSUES.

This brings us to the question, Why should there be any limitations on the power of a bank to issue that particular form of obligation expressed by a bank note? The law puts no limit on the amount for which a bank may become liable through demand by check; nor does the law attempt to limit the right of any individual to make such number and amount of notes as he chooses and pass them to any person willing to receive them; nor does it limit the right of a number of persons to unite in making such number of notes as they choose and using them in the purchase of whatsoever they desire from persons willing to accept them. Why, then, should the public, through law, interfere with the freedom of banks to issue such number of notes as they may deem desirable? The chief purpose is not to protect the holder from loss, because he accepts the bank note voluntarily, the notes not being legal tender, and he could have his recourse through the courts in case of default, the same as against the maker of any other note that he might accept. Indeed, until well along in this century the issuing of notes was regarded as inherent in the nature of a bank. The reason for the limitation and regulation of bank-note issues was well expressed by former Secretary of the Treasury Charles S. Fairchild, in his statements before the Committee on Banking and Currency last January (Hearings, p. 92), as follows:

I conceive that the way Government gets its right to interfere as to these demand obligations is this: They were found to be a most useful instrument in transferring property and services from man to man. To attain their highest usefulness, however, it was necessary that they should have great rapidity of movement, and in order to attain that rapidity of movement the receiver of them must be saved the necessity of looking to the credit of the issuing party, whoever he might be.

Therefore Government properly came in and devised a system by which they shall be issued and then certifies that they are issued under that system. So that a man who takes a note, if he knows how good the system is, can know how good the note is, and he does not have to stop to look further. He has to know one large thing instead of a vast number of smaller things.

Now, that is the same service exactly that the Government performs when it coins pieces of bullion. In the case of silver another service is performed, because with the silver dollars the Government has put a certain degree of promise behind them; but take a piece of gold-and it would be the same way with silver if we had the free coinage of silver with no Government credit behind it--and what the Government does in that instance is simply to take the piece of bullion from the owner of it and put it in a certain form and certify that it is such a quantity and of such a quality. The Government does not contribute any capital; it does not put anything into the bullion transaction; it does not confer much benefit upon the owner of the bullion, because he could put the weight and the quality on it if the Government did not do that, but it does confer a very great benefit upon the people who want to use that bullion for the transfer of their property and services, in that it saves them the trouble of assaying and weighing.

The Government does the same thing with a bank note. It does not put any capi tal into it. It does not give it any credit, except that it provides a system and certi