THE NATURE OF BANK DEPOSITS 119

ceived as capital stock and time deposits signifies but a depreciation
 of the monetary standard, so that the actual purchasing
power of the community remains unchanged.! The “fictitious”
character of deposits, Carroll said, was better understood in this
country than in England, where ignorance of it was illustrated by
the Bank Charter Act of 1844.
The “deposit,” as I have already said, is created by the discount; it is not
drawn from preéxisting funds, as most persons suppose; it is, of course, no
deposit at all, but it is an inscribed credit for money and capital having no
existence.?

[t is a common error, Carroll added, to suppose that banks discount
 on the basis of previously existing funds,

whereas, the discount creates the deposit, the discounted note forming the
only fund out of which it is itself discounted, and the only question the bank
needs to consider is, whether the reserve of coin is sufficient to meet the returning
 liabilities.

Stephen Colwell was another important writer to adopt the
view that deposits are frequently the product of the act of lending.*
 The Massachusetts bank commissioners did likewise in their
report of 1860, asserting that deposits “grow out of the discount-!

 This illustrates our point (see p. 110, note 2) that the problems of the nature
of deposits and of the lending operations of banks (whether or not purely intermediary)
 are distinct. Raguet also held at once the opinions that banks can lend
only what they receive from depositors, since the loan of further sums but depreciates
 the standard correspondingly, and that deposits are created by the bank.
2 C. H. Carroll, “Congressional Movement in the Currency Question,” Hunt's
Merchants’ Magazine (April, 1860), lii, 444. Cp. Carroll, “Bankruptcy in the
Currency,” Hunt's Magazine (June, 1850), x1, 677n.
In regard to Carroll's comment upon the backwardness of English banking theory
in the matter of the nature of deposits, it should be said that MacLeod stated the
proper view, somewhat confusedly, in 1855 (Theory and Practice of Banking, first
edition, i, 209 ff.), and most ably in 1860 (Dictionary of Political Economy, pp.
72-75).
“Mr. Lowell vs. Mr. Hooper,” Hunt's Merchants’ M agazine (April, 1860), xlii,
576. Carroll was reviewing a controversy between Samuel Hooper and J. A. Lowell
(Review of Hooper's Pamphlet, etc.), in which Hooper had undertaken to explain the
mystery that deposits, taken with note issue, increase and diminish with the loans
of banks, by showing that notes are issued and deposits created in the act of lending.
Hooper, Specie in Banks (1860), pp. 14-16.
* Colwell, Ways and Means of Payment (1859), pp. 12, 244, 245. See also, Bank
Notes and Specie (Anon., 1856), pp. 25-27; and discussion in Bankers’ Magazine
May, 1850), iv, 912, 913.