popular confusion on the subject of money and wealth, paper money and bimetallism would never have invaded the field of politics. While we might have had issues of paper money as a means of war finance, such issues would probably have been promptly retired, and, similarly, we should doubtless have abolished bimetallism at an earlier date in the absence of any popular concern over the quantity of money. Under such circumstances, however, discussion of these subjects would have been primarily academic. Most text writers have in fact virtually assumed by their method of treatment that these controversies were mainly academic affairs. They are analyzed from the "scientific" point of view and the workings of economic laws are satisfactorily disclosed, but the tremendous rôle that money has played in society is not usually revealed. Viewed from a broader outlook, the history of money becomes one of the most interesting and human phases of social and economic progress.

A word should be said with reference to the treatment of paper money. It has been customary to discuss the history and principles of regulation of paper money without differentiating between government and bank paper. For instance, Jevons gives an indiscriminate list of the methods that have been employed in the regulation of paper money, some of them relating merely to government paper and others to bank paper. Any attempt to discuss the principles of bank paper money, however, appears to me futile until the student has studied the principles of banking. While, historically speaking, many of the government schemes involved the use of banks as agents, and while the motive for an issue by banks was often not different from that by a government direct, nevertheless the principles governing the regulation of issues by banks are very different from those applying to government issues. In this volume, therefore, bank paper money is not taken up until after the principles of banking have been discussed.

Treatises on banking are usually devoted solely and as a matter of course to what is commonly called "commercial" banking. Indeed, banking and "commercial" banking have been very generally regarded as synonymous terms. Bagehot remarks, for instance, that the Rothschilds are great capitalists but not bankers, while Dunbar in

'True, the public has frequently been concerned over falling or rising pricelevels. Creditors have wished falling prices, or at least opposed a depreciation of the standard, while debtors have frequently desired a cheaper standard of deferred payments. But this question of changing price-levels has been very closely associated in the popular mind with the volume of the currency.

his little classic makes a similar distinction when he says: "In order to be a bank at the present day, an establishment must carry on the purchase of rights to demand money in the future, or securities, and it must also use in some form or other its own engagements for the payment of money upon demand." This conception of banking also finds support in the definition of a bank given in the internal-revenue act of 1866. According to this interpretation savings institutions holding time deposits are not engaged in banking; nor are the great investment houses which annually transfer from investors to borrowers funds amounting to many hundreds of millions of dollars to be regarded as banks. It is obvious, however, that the business world holds no such narrow conception of the banking business. The so-called "commercial" bank with its demand obligations is merely one type of banking institution; and to exclude all other kinds of financial operations is to narrow the field to an extent that gives but a one-sided view of the problems of banking as a whole.

The study of banking has usually been approached by way of the discussion of money as a medium of exchange; hence the customary treatment of money and banking together. It is this method of approach to the subject that is doubtless responsible for the attempt to confine banking within the narrow limits indicated above, for it is only the banks which issue notes and give demand deposits that create media of exchange. While the "economic" function of banks in furnishing society with media of exchange is of fundamental importance and should not be minimized or overlooked, it is at the same time quite as important to consider the "business" function of banks. From the point of view of the business world the chief purpose of banks is to make loans to borrowers. The business man regards his bank as a place to which he may go for assistance when in need-it is a sort of partner in his business venture. The fact that in giving him a loan the bank is creating an inexpensive medium of exchange for the transfer of commodities is from his standpoint of no moment. Similarly, the banker himself views his bank merely as a profit-making institution, the underlying economic function. being but an after-reflection at best. Now, since it is the business men and bankers who use, manage, and direct institutions, the problems of banking cannot be fully apprehended unless we understand the business point of view. Since the business view of banking, with all its psychological aspects, is at bottom responsible for the whole problem of credit organization and control, it is important that the

analysis of banking should primarily proceed from the point of view of the actual business world. The underlying "economic" aspects are not overlooked or minimized by this method of approach; on the contrary, the reliability of notes and checks as media of exchange is only the better understood by virtue of such an analysis.

Again, in the customary treatment of banking, legal distinctions have frequently been confused with economic ones. A bank which creates demand obligations in exchange for future rights is said to be engaged in commercial operations; hence the designation of our national and state banks as "commercial banks." Now to classify a transaction as "commercial" should indicate, it would seem, the economic nature of the operation; and this, indeed, is the intent when one says, for instance, that national banks are commercial banks. They are supposed to serve the needs of commerce, that is, to facilitate the production and marketing of consumers' goods, and are not designed to promote investment or the creation of capital goods. Commercial transactions are in their very nature short-time operations, for consumers' goods move rapidly from one class of middlemen to another. Hence loans for commercial purposes may and should be short-time loans. Such quickly liquidating loans are obviously necessary for a bank which makes its obligations payable on demand. The theory underlying the commercial bank is unquestionably sound. But in practice a large percentage of the loans that give rise to demand deposits are in no direct way related to commercial enterprises. Overemphasis on the demand nature of the deposit has too frequently been accompanied by an underemphasis, if not a total ignoring, of the actual uses to which the funds borrowed on short time are devoted.

In fact, short-time borrowings from "commercial" banks are probably more often devoted to non-commercial than to commercial purposes. For instance, the funds from some short-time loans are used for consumptive purposes. In a far greater number of cases, however, they are devoted to speculation and long-time investment. The mere facts that these loans are of short duration, that they give rise to demand deposits, and that collateral security is usually required do not make them commercial loans, even if they are granted by so-called commercial banks. The very fact that collateral is required is evidence enough that they are not of a commercial nature. Genuine commercial loans require no collateral security, for the reason that such loans are self-liquidating.

Finally, a great quantity of funds, how great not even the banks themselves know, is annually loaned without collateral for investment uses-loaned by "commercial" banks and represented on the liability side of the account by demand deposits. The American practice of granting loans on single-name paper, provided the borrower's character is satisfactory and his financial statement shows a ratio of quick assets to current liabilities of more than two to one, contains no guaranty that the funds loaned will be used for commercial purposes.

Legally speaking, our national and state banks are commercial banks, since they make short-time loans and create demand obligations. Economically speaking, they are as much investment as commercial institutions. Practically speaking, the greatest problems of banking organization and control center around this confusion of investment and commercial operations, the results being manifested in every period of inflation and crisis. Happily the Federal Reserve Act has recognized the situation, and an attempt is now being made to eliminate the more flagrant abuses that have developed in the system.

Turning now from these general considerations to the actual organization of the materials on banking, Part II of the book is divided into the following chapters: "Introduction"; "The Nature and Functions of Credit"; "Instruments of Commercial Credit and the Law of Negotiability"; "Principles of 'Commercial' Banking"; "Relations between Banks"; "The Regulation of Banking"; "The Federal Reserve System"; "Co-operative Banking Agencies"; "Agricultural Credit"; "Investment Banking Institutions," and "The Interrelations of Financial Operations." The reasons for this general arrangement may be briefly indicated.

Since banking is but a particular type of credit operation, the discussion of the principles of banking is preceded by an analysis of credit in general. The central purpose in this analysis of credit is not only to show the nature and underlying basis of credit transactions, but even more to make a sharp distinction between commercial and investment operations. Without a clear appreciation of the difference between a commercial and an investment use of funds the student cannot fully understand the principles of regulation of banking operations that have been developed or comprehend the problem of inflation and commercial crises; while this twofold classification of credit will also be found indispensable to an adequate discussion of savings banks, agricultural credit, and the various types of co-operative banking institutions.

In developing the principles of "commercial" banking and the problems that arise in connection therewith, a departure has been made from the prevalent method of treatment. Following an analysis of the operations of a bank as an individual business institution, we pass to a discussion of the relations that inevitably develop between banks. These interrelations are discussed under two headings: (A) "Within a Given City," and (B) "The System as a Whole.” The materials under A, together with the questions based on them, are designed to indicate the inevitability of the interdependence that exists, and to show how competitive forces have led to the formation of clearing-houses and the various regulations developed by them, while under B are discussed, first, the general everyday business relations that exist between banks in different communities, and, secondly, their relations in times of tension and ease in the money market. The latter, again, is subdivided into (a) seasonal and (b) cyclical interrelations.

In the treatment of crises and panics no attempt is made to include the various theories that have been advanced to account for the periodicity of industrial enterprise; the economic cycle is treated, in the main, only in so far as it is affected by banking operations. In discussing the relation of banking to the economic cycle, however, attention is confined, not merely to the exciting period just preceding and during the panic, but the relation of banking to business at each stage in the cycle is indicated. It has been difficult, however, to get entirely satisfactory readings for this purpose, owing to the fact that the attention of writers has been so largely given to the crisis and panic stages only.

The discussion of the entire problem of banking in relation to the economic cycle is designed to bring out both the interdependence of banking relations and the obvious impossibility, because of the operation of independent competitive forces, of controlling the system through voluntary associations. While the banks as a whole recognize the mutuality of their interests and the necessity of concerted group action, nevertheless the persistence of individual desire to make large profits, on the one hand, or to save one's self first in case of a crisis, on the other, has rendered it impossible in our experience for banking institutions to organize and control the credit system in the interests of the larger welfare.

The readings under "The Regulation of Banking" are designed to bring out the general principles underlying government control,