THE FUNCTIONS OF BANKING

13

or not a bank need necessarily issue notes. Such, for example,
was obviously the case with Gallatin, who referred to American
practice and not to general principles when he said of banking
that it “always implies the right and practice of issuing paper
money as a substitute for a specie currency.” ! For we shall have
occasion to note elsewhere that Gallatin urged that banking by unincorporated
 institutions be allowed, so long as they issued no notes.

With growing appreciation of the fact that the important
functions of banking were not to be comprehended in that of
note issue alone, came an effort to derive a satisfactory classification
 of these functions. That of deposit, discount, and note
issue, since made familiar through its adoption by Dunbar, is the
one most frequently met.? Usually the classification was not of
the operations of banks, but of types of banks themselves. These
were resolved into banks of deposit, banks of discount, and
banks of issue, with the explanation that American banks united
the characteristics of all three.? Raguet adopted this classification
 in 1821, as did Phillips, Hare,and a great many other writers.*

1 Writings, ii, 514; iii, 369. Cp., also, Vethake, Principles of Political Economy
(1838), pp. 153, 154, 209. Critics have at times failed to give this fact its due.
Chaddock (The Safety Fund System) accordingly seems to have become involved
in the inconsistency of remarking in one place (p. 261) upon the identification of
banking with note issue, and stating elsewhere (p. 371) that, while prohibition
of note issue by private banks had seemed just, like action with respect to private
banking of deposit and discount had from the first been regarded as an unwarranted
 interference.
2 A curiously early statement of it is to be found in “Money the Sinews of
Trade” (1731), Davis’s Reprints, ii, 435.
? The minor operations, especially that of dealing in exchange, received their
due notice, of course.
4 Raguet, The Examiner and Journal of Political Economy, ii, 338; Phillips, Manual
 of Political Economy (1828), p. 249; Vethake, Principles of Political Economy
(1838), p. 153; Robert Hare, Suggestions Respecting the Reformation of the Banking
System (1837), p. 9.
Daniel Raymond offered a slightly different classification, dividing the function
of discounting into those of serving as offices of discount and as loan offices; the
basis of the distinction being, apparently, whether the bank advanced money in the
discount of paper representing an actual transaction, already completed, or advanced
 it in some other way. Elements of Political Economy (1823), p. 126. Other
variations may be found in Thomas Paine, Decline and Fall of English Finance
(1796), p. 24, and Publicola, Letters to Gallatin (18153), p. 28.