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IN

ORIGIN OF DEPOSIT BANKING

From 'Lombard Street>

IN THE last century, a favorite subject of literary ingenuity was "conjectural history," as it was then called: upon grounds of probability, a fictitious sketch was made of the possible origin of things existing. If this kind of speculation were now applied to banking, the natural and first idea would be that large systems. of deposit banking grew up in the early world just as they grow up now in any large English colony. As soon as any such community becomes rich enough to have much money, and compact enough to be able to lodge its money in single banks, it at once begins so to do. English colonists do not like the risk of keeping their money, and they wish to make an interest on it; they carry from home the idea and the habit of banking, and they take to it as soon as they can in their new world. Conjectural history would be inclined to say that all banking began thus; but such history is rarely of any value, the basis of it is false. It assumes that what works most easily when established is that which it would be the most easy to establish, and that what seems simplest when familiar would be most easily appreciated by the mind though unfamiliar; but exactly the contrary is true,—many things which seem simple, and which work well when firmly established, are very hard to establish among new people and not very easy to explain to them. Deposit banking is of this sort. Its essence is, that a very large number of persons agree to trust a very few persons, or some one person: banking would not be a profitable trade if bankers were not a small number, and depositors in comparison an immense number. But to get a great number of persons to do exactly the same thing is always very difficult, and nothing but a very palpable necessity will make them on a sudden begin to do it; and there is no such palpable necessity in banking.

If you take a country town in France, even now, you will not find any such system of banking as ours: check-books are unknown, and money kept on running account by bankers is rare; people store their money in a caisse at their houses. Steady savings, which are waiting for investment and which are sure not to be soon wanted, may be lodged with bankers; but the common

floating cash of the community is kept by the community them. selves at home, they prefer to keep it so, and it would not answer a banker's purpose to make expensive arrangements for keeping it otherwise. If a "branch," such as the National Provincial Bank opens in an English country town, were opened in a corresponding French one, it would not pay its expenses: you could not get any sufficient number of Frenchmen to agree to put their money there.

And so it is in all countries not of British descent, though in various degrees. Deposit banking is a very difficult thing to begin, because people do not like to let their money out of their sight; especially, do not like to let it out of sight without security; still more, cannot all at once agree on any single person to whom they are content to trust it unseen and unsecured. Hypothetical history, which explains the past by what is simplest and commonest in the present, is in banking, as in most things, quite untrue.

The real history is very different. New wants are mostly supplied by adaptation, not by creation or foundation; something having been created to satisfy an extreme want, it is used to satisfy less pressing wants or to supply additional conveniences. On this account, political government, the oldest institution in the world, has been the hardest worked: at the beginning of history, we find it doing everything which society wants done and forbidding everything which society does not wish done. In trade, at present, the first commerce in a new place is a general shop, which, beginning with articles of real necessity, comes shortly to supply the oddest accumulation of petty comforts. And the history of banking has been the same: the first banks were not founded for our system of deposit banking, or for anything like it; they were founded for much more pressing reasons, and having been founded, they or copies from them were applied to our modern uses.

[Gives a sketch of banks started as finance companies to make or float government loans, and to give good coin; and sketches their function of remit. ting money.]

These are all uses other than those of deposit banking, which banks supplied that afterwards became in our English sense deposit banks: by supplying these uses, they gained the credit that afterwards enabled them to gain a living as deposit banks; being

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trusted for one purpose, they came to be trusted for a purpose quite different, ultimately far more important, though at first less keenly pressing. But these wants only affect a few persons, and therefore bring the bank under the notice of a few only. The real introductory function which deposit banks at first perform is much more popular; and it is only when they can perform this most popular kind of business that deposit banking ever spreads quickly and extensively.

This function is the supply of the paper circulation to the country; and it will be observed that I am not about to overstep my limits and discuss this as a question of currency. In what form the best paper currency can be supplied to a country is a question of economical theory with which I do not meddle here: I am only narrating unquestionable history, not dealing with an argument where every step is disputed; and part of this certain history is, that the best way to diffuse banking in a community is to allow the banker to issue bank notes of small amount that can supersede the metal currency. This amounts to a subsidy to each banker to enable him to keep open a bank till depositors choose to come to it.

The reason why the use of bank paper commonly precedes the habit of making deposits in banks is very plain: it is a far easier habit to establish. In the issue of notes the banker, the person to be most benefited, can do something, he can pay away his own "promises" in loans, in wages, or in payment of debts, but in the getting of deposits he is passive; his issues depend on himself, his deposits on the favor of others. And to the public the change is far easier too: to collect a great mass of deposits with the same banker, a great number of persons must agree to do something; but to establish a note circulation, a large number of persons need only do nothing, they receive the banker's notes in the common course of their business, and they have only not to take those notes to the banker for payment. If the public refrain from taking trouble, a paper circulation is immediately in existence. A paper circulation is begun by the banker, and requires no effort on the part of the public, — on the contrary, it needs an effort of the public to be rid of notes once issued; but deposit banking cannot be begun by the banker, and requires a spontaneous and consistent effort in the community: and therefore paper issue is the natural prelude to deposit banking

JENS BAGGESEN

(1764-1826)

ENS BAGGESEN was born in the little Danish town Korsör in 1764, and died in exile in the year 1826. Thus he belonged

to two centuries and to two literary periods. He had reached manhood when the French Revolution broke out; he witnessed Napoleon's rise, his victories, and his fall. He was a full contemporary of Goethe, who survived him only six years; he saw English literature glory in men like Byron and Moore, and lived to hear of Byron's death in Greece. In his first works he stood a true representative of the culture and literature of the eighteenth century, and was hailed as its exponent by the Danish poet Herman Wessel; towards the end of the century he was acknowledged to be the greatest of living Danish poets. Then with the new age came the Norwegian, Henrik Steffens, with his enthusiastic lectures on German romanticism, calling out the genius of Oehlenschläger, and the eighteenth century was doomed; Baggesen nevertheless greeted Oehlenschläger with sincere admiration, and when the 'Aladdin' of that poet appeared, Baggesen sent him his rhymed letter 'From Nureddin-Baggesen to Aladdin-Oehlenschläger.'

JENS BAGGESEN

Baggesen was the son of poor people, and strangers helped him to his scientific education. When his first works were recognized he became the friend and protégé of the Duke of Augustenborg, who provided him with the means for an extended journey through the Continent, during which he met the greatest men of his time. The Duke of Augustenborg meanwhile secured him several positions, which could not hold him for any length of time, nor keep him at home in Denmark. He went abroad a second time to study pedagogics, literature, and philosophy, came home again, wandered forth once more, returned a widower, was for some time director of the National Theatre in Copenhagen; but found no rest, married again, and in 1800 went to France to live. Eleven years later he was professor in Kiel, returning thence to Copenhagen, where meanwhile his

fame had been eclipsed by the genius of Oehlenschläger. Secure in the knowledge of his powers, Oehlenschläger had carelessly published two or three dramatic poems not worthy of his pen, and Baggesen entered on a violent controversy with him in which he stood practically by himself against the entire reading public, whose sympathies were with Oehlenschläger. Alone and misunderstood, restless and unhappy, he left Denmark in 1820, never to return. Six years later he died, longing to see his country again, but unable to reach it.

His first poetry was published in 1785, a volume of 'Comic Tales,' which made its mark at once. The following year appeared in quick succession satires, rhymed epistles, and elegies, which, adding to his fame, added also to the purposeless ferment and unrest which had taken possession of him. He considered tragedy. his proper field, yet had allowed himself to appear as humorist and satirist.

When the great historic events of the time took place, and overthrew all existing conditions, this inner restlessness drove him to and fro without purpose or will. One day he was enthusiastic over Voss's idyls, the next he was carried away by Robespierre's wildest speeches. One year he adopted Kant's Christian name Immanuel in transport over his works, the next he called the great philosopher "an empty nut, and moreover hard to crack." The romanticism in Denmark as well as in Germany reduced him to a state of utter confusion; but in spite of this he continued a child of the old order, which was already doomed. And with all his unrest and discord he remained nevertheless the champion of "form,» "the poet of the graces," as he has been called.

This gift of form has given him his literary importance. He built a bridge from the eighteenth to the nineteenth century; and when the new romantic school overstepped its privileges, it was he who called it to order. The most conspicuous act of his literary life was the controversy with Oehlenschläger, and the wittiest product of his pen is the reckless criticism of Oehlenschläger's opera 'Ludlam's Cave.' Johann Ludvig Heiberg, the greatest analytical critic of whom Denmark can boast, remained Baggesen's ardent admirer; and Heiberg's influential although not always just criticism of Oehlenschläger as a poet was no doubt called forth by Baggesen's attack. Some years later Henrik Hertz made Baggesen his subject. In 1830 appeared Letters from Ghosts,' poetic epistles from Paradise. Nobody knew that Hertz was the author. It was Baggesen's voice from beyond the grave, Baggesen's criticism upon the literature of 1830. It was one of the wittiest, and in versification one of the best, books in Danish literature.

Baggesen's most important prose work is 'The Labyrinth,' afterwards called 'The Wanderings of a Poet.' It is a poetic description