DEVELOPMENT OF THE MONETARY PROBLEM. 25 



to obtain the money from banker C in exchange for the promise 

 of A guaranteed by himself. It is obvious that should D or 

 banker C pay to B the full amount of money specified in the 

 promise of A, he would be dispossessed thereof from the time it 

 was given to B until it was repaid by B — that is, he would have 

 rendered a service without compensation. It is equally obvious 

 that compensation would be obtained if a portion of the sum 

 specified in the promise were withheld by C. This sum is the 

 discount. Banker C, by making a practice of thus advancing 

 money on such promises, may obtain a considerable revenue. 

 Hence banks of discount. 



There are banks which not only make money by discounting 

 from the amount of deposits over and above what they estimate 

 will be required for daily needs, but which issue promises to 

 pay in the form of bank notes, the funds available for use in 

 discounting being, therefore, increased. Hence banks of circu- 

 lation. 



^he development of banks, therefore, has been from simple 

 repositories of the commodity used as a medium of exchange 

 into purveyors of the currency that is superseding coin, the pro- 

 viders of funds for commercial transactions, and the centers 

 through which instruments of exchange are balanced. 



Besides the checks and promissory notes issued by individuals, 

 which have a limited circulation, and the notes issued by banks, 

 which have a more extended circulation, many governments issue 

 notes directly that circulate generally among their peoples. As, 

 however, the precious metals are the only commodities generally 

 accepted as money throughout the world, all promises to pay are 

 based upon one or another of them, but the aggregate of value 

 represented by these promises to pay is so great that their ful- 

 fillment at any one time in coin or bullion would be impossible, 

 the ratio between the volume of exchanges effected by the use 

 of paper representatives of money to the volume effected by 

 coin or bullion itself being, as has been said, greater than nine 

 to one. 



This fact, that the total value called for by the paper repre- 

 sentatives of value at any time in existence, although expressed 

 in terms of the units of value originally designating coins, vastly 

 exceeds the value of the metals as coined or held in bullion by 

 the sources whence coins are issued, together with the fact that 

 no man willingly and knowingly exchanges commodities for 

 paper representatives of value without believing that he can 

 obtain the worth called for by these representatives, leads to the 

 perception that, after all, it is not the metals, however precious, 

 but property of all kinds that is their basis, and that these paper 

 representatives of value are succeeding coins in designating and 



VOL. XLIX. 3 



