CHAPTER 1 
THE FUNCTIONS OF BANKING 
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Tendency to make banking synonymous with note issue. — Banking operations 
classified as deposit, discount and issue. — Is note issue essential? — Banks con- 
sidered as agencies in the distribution of loanable funds. — Banks as clearing houses 
for the cancellation of debts and credits. — Summary. 
THE colonists saw in a bank little more than the source of a 
form of currency. They complained frequently of a scarcity of 
circulating medium, and urged the issue of paper money to supply 
the want that an unfavorable balance of trade was alleged to 
have occasioned with respect to metallic money. With the ex- 
ception of some reference to the service rendered by banks as 
safe depositories for the precious metals and other valuables, 
virtually the whole discussion of banks turned upon the matter 
of securing an adequate currency. Indeed, so completely did the 
issue of notes express the prevailing conception of the operations 
of a bank, that the institution of private banks and the emission 
of bills of credit by the provincial governments were debated as 
practically equivalent alternatives.! The friends of a paper cur- 
rency disagreed among themselves simply as to which was the 
more expedient way of accomplishing the common purpose, and 
the demand for the establishment of a bank largely disappeared 
! Adolph O. Eliason concludes, in his study of the early development of com- 
mercial banking in America, that the failure to establish commercial banks during 
the colonial period was owing to the conditions of trade and industry. ‘There were 
no manufactures requiring extensive capital and banking facilities; the financial 
aid necessary to carry on the operations under the agricultural and domestic sys- 
tems was supplied by individuals in the Colonies; the retail trade and the coasting 
and shipping industries were conducted on English capital; the banking for the 
merchants was done in England; and colonial merchants, with the aid of their own 
capital, and their banking connections in England, were able to give to individuals 
and small traders, the limited banking services and accommodations which they 
required.” (Rise of Commercial Banking in the United States, p. 49.) It seems a 
fair question whether some of the conditions which Eliason enumerates to explain 
the absence of commercial banks were not quite as largely caused by that lack.