contract by which their possessor obtained them from the bank, while they enable him to divide his credit as he sees fit and to buy what he wants without further guarantee. Since all the transactions will cancel within a brief period, all the paper evidences will return to the bank within that period. It will then be found that the bank has only "furnished a medium" for all the transactions. We have here a striking illustration of the way in which phrases, in this domain, alter their meaning before the man who uses them is aware of it. To "furnish a medium," on the currency principle, means to provide the community with a currency, in the belief that, but for this provision, it would have none, while in fact the bank takes away specie to give paper. On the banking principle, the bank does, in a legitimate sense, furnish a medium of credit in operations in which money is dispensed with, and a kind of barter of a higher grade is reintroduced, money being used as a standard of reference for the terms of the barter. All the persons in the market may find themselves in a snarl of debts which would hinder them all from moving, but there would be a thread of mutual or consecutive obligations which, if it could be found and drawn out, would absolve them all. The bank operations effect this.
This latter set of facts is the one on which the "banking principle" is based. Both principles are true, but no one has yet succeeded in defining their spheres or their relation to each other. The only line which can be drawn between them is a vague and empirical one; that the small notes are under the currency principle, and the large notes under the banking principle. The latter are used in the greater transactions of business; the former in expenditures for consumption. Hence the earnest attempt of the banks, which we shall see in this history, to get the right of emitting small notes, and also the constantly repeated effort of currency reformers to forbid the same. The small notes, under the currency principle, were a permanent loan obtained by the banks from the public, but they also compelled simple and uneducated people to hold a stake in the prosperity of the bank with which they had nothing to do, and on which stake they might lose but never could gain.
It will be seen that the bank projectors of the th and tl centuries mentioned above, Chapter 1, had won a vague and imperfect perception of the facts underlying the banking principle. They were trying to enunciate its doctrines and devise an institution to operate upon them.
The arguments in favor of bank note currency in this country have always been made from the standpoint of the "banking principle." That currency was always on the currency principle: The banking principle fails entirely when loans are made on accommodation paper, or on land, or on long contracts of any kind. Hence in the history of American banking, the banking principle appears to have been a delusion.
In the paper in which he first laid before Congress the arguments for a Bank and the outline of his plan, Hamilton made a special explanation and defence of two features in it. The first was the provision that shares in the
