116 BANKING THEORIES IN UNITED STATES the need of legal regulation. Gallatin, for example, maintained that the business of deposit and discount calls for no more re- striction than any other species of commerce! It was frequently pointed out that bank notes circulate among individuals who accept them without being in the position to use much discretion in the matter; whereas the holders of bank deposits become such voluntarily and with the opportunity of informing themselves about the bank involved.2 Accordingly, such safeguards as legal reserve minima, and regulation of the proportion of capital to liabilities, were usually proposed for bank notes only? Now, it is true that protection of note-holders (whether by safety fund, prior lien, bond security, or what not), while depositors receive no such protection, has an entirely valid justification. It is, however, with respect to particular banks only that there is force in the arguments that bank notes meet the test of presentation for pay- ment less frequently, and that their acceptance is far less volun- tary. There is no reason for distinguishing between notes and deposits when machinery is being set up for the control of expan- sion on the part of the banking community as a whole. In urging that it is with reference to note issue only that charters should be required of banks, or minimum ratios of reserves and capital to demand liabilities insisted upon, the part that deposits play in causing fluctuations in the volume of media of payment was over- looked. And in general this was because of the failure to under- stand that deposits are created by the banks themselves in the process of making loans. Tt is not improbable that the tendency to miss the true nature of bank deposits is in part to be explained by the relatively large volume of deposits of a more or less permanent sort that were held by commercial banks in the absence of any considerable de- velopment of savings banks. Before savings banks became preva- 1 Gallatin, “Suggestions” (1841), Writings, iii, 428. Cp. iii, 374; and Letter to Maison (1836), ii, 516. This letter contains both the same view as that in the text and another apparently inconsistent with it. 2 Gallatin, Letter to Maison, Writings, ii, 516; Hildreth, Banks, Banking, and Paper Currencies (1840), p. 155; Bissell, “Banking in Massachusetts,” Bankers’ Magazine (March, 1853), vii, 677. 3 See Chaddock. Safety Fund System, p. 379.