CHAPTER X 
SUMMARY OF THE VIEWS ON THE NATURE AND 
UTILITY OF BANKS 
The dual réle of commercial banking. — The utility of banks as source of a form 
of currency. — The utility of banks as distributors of loanable funds. 
WHETHER consciously or otherwise, banks were regarded in their 
dual role: first, as the institutions that provide the community 
with a large part of its media of payment; secondly, as establish- 
ments for the lending of purchasing power. When it was asserted 
that banks provide an inexpensive currency, that they increase 
capital in the guise of circulating media, or that they lend elas- 
ticity, be it pernicious or desirable, to the media of payment, it 
was their role as a source of currency that was being primarily 
referred to. But when they were being considered as intermedi- 
aries between borrowers and lenders, or as lenders, in addition, 
of a peculiarly significant credit of their own, it was their function 
in directing the resources of the country that was being contem- 
plated. Not, of course, that these two aspects of banking permit 
of separation, except in the abstract and with due consciousness 
of the limitations of such treatment. It isin placing purchasing 
power in the hands of this or that entrepreneur that banking 
brings media of payment into existence. Unfortunately, many 
(I think we may say the great majority) of the writers of the early 
nineteenth century, did, to a large degree, regard these two func- 
tions of banking separately; and in this mode of treatment lay the 
source of a number of their errors. 
The first notable experience of Western civilization with paper 
money began in 1690, with the emission of bills of credit by the 
colony of Massachusetts Bay. The problem at once arose of de- 
termining the economic significance of an increase in the quantity 
of media of payment, whether through the issue of government 
paper, or of bank notes. Not a few believed that a net addition