THE NATURE OF BANK DEPOSITS 113 
ments prevent banks from raising the quantity of circulating 
medium, and illogically saw in this a basis for their former 
opinion; but those who held that banks can inflate the currency 
for a more or less lengthy period, restricted their lending opera- 
tions no less frequently to mere intervention between borrowers 
and lenders, arguing that the advance of more monetary units 
than were received from depositors effected but a depreciation of 
the standard. In escaping the confusion of monetary capital with 
capital in its other forms, they fell into another error. This 
problem has been dealt with in an earlier chapter;! my present 
purpose is simply to indicate that it would be equally logical, or 
rather, no more illogical, to recognize that bank deposits originate 
in part in the process of lending, and yet to hold that in lending 
the bank performs but an intermediary function. For, whether 
in the shape of notes or deposits, inflation implies depreciation of 
the purchasing power of the unit and has the same bearing upon 
the potentialities of banking. 
Despite the prevailing theory with respect to the limitations of 
the lending power of banks, the fact that bank notes are units of 
media of payment created by the banks themselves was, of course, 
universally recognized. Niles railed incessantly against the insti- 
tutions with the privilege of “creating, out of nothing, two or 
three hundred millions of paper-money, which they were author- 
ized to pass away, at the value of silver and gold, and which the 
people were virtually obliged to take.”? Raymond, Raguet, 
Gouge, and innumerable lesser writers heaped unstinted condem- 
nation upon the “order of rag barons’ who lived upon the labor 
of others by putting forth their vile money that rested upon “an 
idea called credit.” That many thought effective checks ob- 
tained against the abuse of this power to manufacture media of 
payment is another matter. The important thing to notice is 
that, as long as those liabilities were stated in the form of bank 
notes, it was recognized, necessarily, that the banker, in discount- 
ing bills of exchange and promissory notes, created liabilities 
against himself that formed a part of the currency, and that in so 
! See Chapter VIII. ? Niles’ Register (1818), xiv, 197. 
* Anon., Enquiry into the . . . Tendency of Public Measures ( 1704), p. 16.