Financial Legislation in Principle and in History 9 



same as they would be if the people at large had a different or 

 more correct idea of what the facts were. A law is a compro- 

 mise between the popular error as to what the facts are and what 

 would otherwise be the logical conclusion from the facts 

 themselves. 



Misconception as to the organic nature of credit has given rise 

 to discussions concerning the elasticity of the circulating medium, 

 and especially of bank money. The clearing up of this discussion 

 has depended upon the working out and popularizing of the idea 

 that "business makes money." In England, William Dunning 

 McLeod, and in the United States, Professor Charles Franklin 

 Dunbar, are chiefly to be thanked for the prominence they have 

 given to this principle. It has been, however, extremely difficult 

 to bring it into a clean-cut form, even with the help of catchy 

 phrases. The supposed distinction between notes and deposits 

 has been the stumbling block in the way of a clear conclusion, 

 for the theory of banking does not contrast them with each other, 

 but both with reserves. The popular materialistic preference for 

 notes and the perverted term "deposit" have led to endless 

 confusions. 



Originally, a banker was a dealer in money. He sat behind a 

 table or "bank" holding his money, and was little more than a 

 money changer. It became easy, however, for him to do busi- 

 ness in exchange, in other words, to buy and sell money for future 

 delivery ; and in that way he made loans, but these operations 

 were looked upon purely from the materialistic side. The notes 

 and deposits that he soon learned to give in making his loans 

 were called "money." The financial world, even up to the top, 

 has always been obsessed by the tyranny of this verbal confusion 

 between the bailment of material money in return for hire, anal- 

 ogous to the hiring of a horse at a livery stable, and the making 

 of promises for future delivery of money, instead of perceiving 

 that those promises for future delivery were not meant to be car- 

 ried out literally, but were simply used by business men as a guar- 

 anty for the fulfilment of business contracts. Money theories 

 have kept as closely as they could along popular, materialistic 

 lines, and have treated notes and deposits as money, and looked 



229 



