BORROWERS AND LENDERS {:SHBE : nthek = 
To some it was quite sufficient that banks should do Son = 
than this. Individuals with loanable funds would hardly now rT > 
who merited their confidence, it was pointed out, and would Tre- fie) 
quently allow their funds to lie idle were it not for the intercession 
of the banks. These institutions “assume the responsibility of 
the debtor; they relieve the creditor of his anxiety and doubt; 
they enable him to divide into small portions, and transfer some 
of his risk to those with whom he deals.” ! Rae observed that 
banks remove three difficulties that would obtain were the bor- 
rowers of a bank to deal directly with its cash depositors: the two 
parties would but infrequently know of each other’s needs and 
character; the amounts which the one wished to lend and the 
other to borrow would hardly be likely to be equal; and, finally, 
the two might not care to have the loan extend over the same 
period of time.? 
There were a few writers who denied that any benefit results 
from the action of banks in placing at the disposal of borrowers 
the funds received from depositors (and shareholders). Thus 
Gouge asserted that banks “do not increase the loanable capital 
of a country, but only take it out of the hands of its proprietors, 
and place it under the control of irresponsible Bank Directors.” 3 
This raised the significant question whether or not the banker is 
wise in the distribution which he makes of the purchasing power 
entrusted to his care. Since the problem has equal bearing on 
his lending operations when they are regarded as advances in 
part of the banker’s credit, and not merely as the loan of money 
received from depositors, it will be dealt with after the former 
viewpoint has been considered. Of course, the assumption that 
the judgment of the banker in selecting borrowers is sound was 
more or less implicit in the argument of those who, with Rae, 
! Porter in North American Review (1827), xxiv, 183. From the point of view of 
creditor’s risks, it should be observed, banking involves on a smaller scale the same 
principle that underlies the insurance business: each bank makes so many loans that 
loss from any one becomes proportionately less disastrous, the risk being more or 
less calculable through the theory of probability as applied to large numbers. 
* Rae, Sociological Theory of Capital (1834), p. 311. Cp. pp. 208, 299, 310. 
* Gouge, Short History of Paper Money and Banking in the United States (1833), 
P-45. Cp. minority report on banks in the Pennsylvania Constitutional Convention 
(1837), Niles’ Register, lii, 217.