THE NATURE OF BANK DEPOSITS 117

lent, commercial banks were presumably made the depositories
of much actual cash for safe keeping and the earning of interest.
This may well have helped to obscure the fact that some deposits
originated in the lending activities of the banks.
The belief that bank deposits arise wholly through the bringing
of cash to the banks was the dominant one. But the other view,
more orthodox to-day, that the banks also create deposits, as they
do notes, was advanced by some writers at a significantly early
date. Hamilton, apparently, perceived the dual nature of deposits
 in his Report on a National Bank of 1790. After explaining
that banks can put a far greater sum into circulation than they
ave on hand as gold and silver, he remarked that every loan
which a bank makes is, in its first shape, a book credit, and in
any cases is merely transferred to different creditors, circulating
as such and performing the office of money until someone, into
whose possession it has come, decides to use it in cancellation of
is debt to the bank, or to call for its conversion into coin or
notes." Bollman observed in 1810 that most large payments were
already being made not in specie, but in “bank credit, rendered
portable, transferable, and divisible into exact sums, by the contrivance
 of checks.” These credits the bank “creates and multiplies
 at pleasure,” becoming a “mine and mint.” 2
Raguet, in his report of 1821 to the Senate of Pennsylvania,
classified banks, after a fashion already becoming orthodox, into
banks of deposit, of discount, and of circulation. His definitions
of the three types are significant, however. Banks of discount are
limited in the amount of their loans to the amount of their own
apital; banks of deposit merely issue convenient receipts for
money received for safe keeping; but banks of circulation create
part of the circulating medium that they lend by loaning their
own credit in the form either of notes or of book entries payable
upon demand.? Raguet repeated this in his later writings, refer-Hamilton,
 Report on a National Bank (1790), American State Papers, Finance
i, 68.
* Bollman, Paragraphs on Banks (1810), p. 21. I have found no other statements
of this thesis between Hamilton’s and Bollman’s, nor a third before that of 1821
which follows in the text. :
Report of January 13, 1821, Examiner 1835), ii, 337, 338.