168 ECONOMIC PRINCIPLES

Sometimes, for example in London, their settlement is made
a further item of book-keeping, all the bankers having
accounts in this case with the Bank of England, and mutual
payments being made by drafts on that Bank. Thus, in
1902, the London Bankers’ Clearing House effected payments
 exceeding £10,000,000,000 without the intermediary
of a single coin. The economy of money effected by the
combined operations of banks, aided by clearing houses, and
by book credits and like devices, is very great, and reduces
the demand for money as a medium of exchange.
But credit devices cannot entirely replace money in
trade. The condition necessary for the smooth working of
the organisation of credit is that, whenever required, the
money, the claim to which is attested by credit documents,
shall be forthcoming. A certain amount of money must
therefore be held, ready to meet claims, by those liable to be
called upon. The nature of the business they transact, and
other circumstances, will determine how much each needs in
order to be ready to meet every demand likely to be made.
Some must keep more than others. The amount necessary
varies with the state of trade, for the disposition to demand
cash varies a good deal from time to time. The extent to
which business can be conducted on a credit basis is not
unlimited, and the creation of credit instruments must
bear some relation to the cash available to meet demands
arising out of them.
Further, there is a large class of transactions in which
money cannot be replaced by credit, where the habits of
those concerned will not admit of the use of a cheque, or
other claim to money, in place of the money itself. For
payment of wages, in general, and for a great part of retail
transactions, especially the smaller ones, actual money is
needed. These transactions form a substantial proportion
of the total exchange transactions of the community, and
represent the final exchange of a large part of the products
of industry. High prices call for the use of more money in
this field, while, with low prices, less money is needed to
effect the exchange of an equal mass of commodities.
Money thus forms the actual medium of exchange for