The Economic Functions Of Banks

Viewed from the standpoint of the nation rather than from that of

individuals, the functions of banks may be described as those of

intermediaries in exchanges and in the investment of capital. In the

former capacity they supply the world with the major part of its

medium of exchange and serve as distributing agents for that portion

of the supply which comes from other sources. They create a medium of

exchange through a process of bookkeeping which is world-wide in

extent, and through which the mutual indebtedness of individuals,

cities, and other subdivisions of countries and nations, brought about

by purchases and sales on credit, are offset without the use of money.



The practice of depositing surplus funds with banks for safekeeping

and consequently of using them as paymasters has resulted in the

reliance of everybody upon banks for currency in any form, and has

thus thrown upon them the responsibility of directly utilizing all the

sources of money supply. Thus while the mints of the United States and

most other countries coin gold bullion, and supply subsidiary silver

and copper and nickel coins to private persons on the same terms as to

banks, as a matter of fact few private persons take advantage of this

privilege, finding it more convenient and profitable to get the coin

they want from banks. The same is true of government notes in

countries in which such notes constitute a portion of the currency.



The accumulation of a nation's capital and its investment require the

cooperation of numerous agencies of which banks are the chief. They

collect the savings of the people, combine them into amounts of

sufficient size for investment purposes, and invest them temporarily

and sometimes permanently. Cooperating agencies in this work are

insurance companies, societies of various kinds for the promotion of

saving, stock exchanges, promoters, etc. Some of these take the place

of banks in the performance of these services, while others supplement

and aid them.