84 BANKING THEORIES IN UNITED STATES 
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of the value of each unit. Many of them, with that inconsistency 
which often characterizes the development of economic theories, 
made suggestions which, had they been followed through, would 
have resulted in a complete revision of their views. 
With few exceptions, those who denied the possibility of creat- 
ing capital, or of rendering the media of payment more abundant, 
by the issue of bank notes, recognized only two major advantages 
to be gained from banking. The first was displacement of costly 
forms of currency through the substitution of relatively inexpen- 
sive types; the second was that gained through what we may term 
the utilization of idle surpluses of cash. In the latter view banks 
were regarded as mere intermediaries between borrowers and 
lenders. 
The two notions were not mutually consistent. If banks, by 
temporarily inflating the currency, crowd specie out of circulation 
to be exported in exchange for other forms of capital, they cannot 
be regarded as mere lenders of what they themselves borrow. To 
consider them such is to confuse the matter of the aggregate pur- 
chasing power of the existing media of payment with the distri- 
bution of that purchasing power. It is true, broadly speaking, 
that inflation of the media of payment by banks ultimately results 
in restoring the aggregate purchasing power of the media to its 
former level, through the depreciation of each unit and the ex- 
portation of gold from bank reserves, making contraction neces- 
sary.! But inflation takes the form of granting the borrowers of 
the banks a larger fraction of the total quantity of monetary 
units than they had before, thus giving them command of a 
greater proportion of the community’s wealth. This is effected 
by nibbling a fraction of the purchasing power of every preéxist- 
ing unit of media of payment, and placing it at the disposal of 
those who receive the newly added units.? And unless it can be 
shown that, in the restoration of the purchasing power of the sum 
1 The subtleties of the quantity theory, and the qualification that the issue of 
bank credit raises the normal level of quantity of circulating medium for each 
country, need not concern us here. 
2 Tt is not supposed, of course, that the preéxisting units of media of payment can 
be nicely distinguished, in the physical sense, from the new ones. But the necessity 
of differentiating, in the abstract, elements that are mechanically indistinguishable, 
is a familiar one in economic reasoning.