the borrower and the lender. He borrows of one party, and lends to another; and the difference between the terms at which he borrows and those at which he lends, forms the source of his profit. By this means he draws into active operation those small sums of money which were previously unproductive in the hands of private individuals; and at the same time furnishes accommodation to those who have need of additional capital to carry on their commercial transactions.

Banks have been divided into private and public. A private bank is that in which there are but few partners, and these attend personally to its management. A public bank is that in which there are numerous partners, and they elect from their own body a certain number, who are entrusted with its management. The latter are usually called Joint Stock Banks.

The business of banking consists chiefly in receiving deposits of money, upon which interest may or may not be allowed;-in making advances of money, principally in the way of discounting bills;-and in effecting the transmission of money from one place to another. Private banks in metropolitan cities are usually the agents of the banks in the provinces, and charge a commission on their transactions. In making payments many banks issue their own notes.

The disposeable means of a bank consist of-First,the capital paid down by the partners or shareholders. Secondly, the amount of money lodged by their customers. Thirdly, the amount of notes they are able to keep out in circulation. Fourthly, the amount of money in the course of transmission, that is, money they have received, and are to re-pay, in some distant place, at a future time.

These disposeable means are employed-First, in discounting bills. Secondly,- in advance of money in the form of cash credits, or over-drawn accounts. -Thirdly, in the purchase of government, or other securities. Fourthly, a part is kept in the banker's

till, to meet the current demands.

Of these four ways of employing the capital of a bank, three are productive, and one is unproductive. The discounting of bills yields interest-the over-drawn accounts yield interest -the government securities yield interest-the money in the till yields no interest.

The expenses of a bank may be classified thus:rent, taxes, and repairs of the house in which the business is carried on;-salaries of the officers;-stationer's bill for books, paper, notes, stamps, &c.-incidental expenses, as postages, coals, &c.

The profits of a bank are that portion of its total receipts including discount, interest, dividends, and commission-which exceeds the amount of the ex

penses.

SECTION II.

OF THE UTILITY OF BANKING.

In the first place, banks are useful as places of security for the deposit of money. The circumstance which gave rise to the business of banking in this country, was a desire on the part of the merchants of London to obtain a place where they might lodge their money in security. Every one who has had the care of large sums of money, knows the anxiety which attends their custody. A person in this case must either take care of his money himself, or trust it to his servants. If he take care of it himself, he will often be put to inconvenience, and will have to deny himself holidays and comforts, of which a man who is possessed of much money would not like to be deprived.

If he entrust it to others, he must depend upon their honesty and their ability. And although in many important cases a master is compelled to do this, yet he does not feel the same satisfaction as if the money was

actually under his own care. Some instances of neglect or of dishonesty will necessarily occur, and these will occasion suspicion in reference to other parties against whom no suspicion ought to be entertained. Besides, in both these cases the money is lodged under the owner's own roof, and is subject to thieves, to fire, and to other contingencies, against which it is not always easy to guard.

Åll these evils are obviated by means of banking. The owner of money need neither take the charge of it himself, nor trust to his dependants. He can place it in the hands of his bankers. They are wealthy men, and are responsible to him for the amount. If they are robbed it is no loss to him. They are pledged to restore to him the amount of his deposit when he shall require it. Whenever he wants money he has only to write an order or draft upon his banker, and the person to whom he is indebted takes the draft to the bank, and without any hesitation or delay receives the money.

2. The bankers allow interest for money placed in their hands.

this

By means of banking the various small sums of money which would have remained unproductive in the hands of individuals, are collected into large amounts in the hands of the bankers, who employ it in granting facilities to trade and commerce. Thus banking increases the productive capital of the nation. At the origin of banking, "the new-fashioned bankers," as they were called, allowed a certain rate of interest for money placed in their hands. The banks of Scotland carry practice to the greatest extent, as they receive upon interest so low an amount as ten pounds; and also allow interest on the balance of a running account. Many of the country bankers in England allow interest on the balance of a running account, and charge commission on the amount of the money withdrawn. The London bankers do not allow interest on deposit, but neither do they charge commission. All their profits are derived

from the use of their customer's money. The banks of Scotland do not charge commission, although they allow interest on deposits, but then those banks have a profit by the issue of their notes. The London bankers do not issue notes.

3. Another advantage conferred upon society by bankers is, that they make advances to persons who want to borrow money. These advances are made-by discounting bills-upon personal security-upon the joint security of the borrower, and two or three of his friendsand sometimes upon mortgage. Persons engaged in trade and commerce are thus enabled to augment their capital, and consequently their wealth. The increase of money in circulation, stimulates production. When bankers are compelled to withhold their usual accommodation, both the commercial and the agricultural interests are plunged in extreme distress. The great advantage arising to a neighbourhood from the establishment of a bank, is derived mainly from the additional supplies of money advanced in the form of loans, or discounts, to the inhabitants of the place. This principle is so well understood in Scotland, that branch banks are sometimes established in poor districts with a view of obtaining a future profit from the prosperity which the bank will introduce.*

4. Another benefit derived from bankers is, that they transmit money from one part of the country to another.

There is scarcely a person in business who has not occasion sometimes to send money to a distant town. But how is this to be done? He cannot send a messenger with it on purpose-that would be too expensive. He cannot send it by post--that would be too hazardous. Besides, the sum may be some fraction of a pound, and then it cannot go by post. The post too takes a considerable time, as three letters at least must pass on the transaction. If he live in London he

* Evidence before the Select Committee of the House of Commons,p.43.

may obtain a bank post bill, but he cannot obtain that in the country and he may not be able to obtain it in London for the exact sum he wants. How then is the money to be sent ?

Every country banker opens an account with a London banker. If, then, a person lives at Penzance, and wants to send a sum of money to Aberdeen, he will pay the money into the Penzance bank, and his friend will receive it of the Aberdeen bank. The whole transaction is this: the Penzance bank will direct their agent in London to pay the money to the London agent of the Aberdeen bank, who will be duly advised of the payment. A small commission charged by the Penzance bank, and the postages, constitute all the expenses incurred, and there is not the least risk of loss.

Commercial travellers, who go collecting money, derive great advantage from the banks. Instead of carrying with them throughout the whole of their journey all the money they have received, when perhaps it may be wanted at home, they pay it into a bank, by whom it is remitted with the greatest security, and at little expense; and they are thus delivered from an incumbrance which would have occasioned great care and anxiety.

5. Wherever a bank is established, the public are able to obtain that denomination of currency which is best adapted for carrying on the commercial operations of the place. In a town which has no bank, a person may have occasion to use small notes, and have none but large ones; and at other times he may have need of large notes, and not be able to obtain them. But where a bank is established there can be no difficulty of this kind. The banks issue that description of notes which the receivers may require, and are always ready to exchange them for others of a different denomination. Banks too, usually supply their customers and the neighbourhood with silver; and if on the other hand, silver should be too abundant, the banks will receive it,