Economics for Helen by Hilaire Belloc

During the last two hundred and fifty years there has arisen, among other modern economic institutions, the institution of _Banking_.

It has origins much older; indeed, people did something of the kind at _all_ times, but Banking as a fully developed institution grew up in this comparatively short time: since the middle of the seventeenth century. It began in Holland and England and spread to other countries.

Like other modern institutions, it only became really important in the latter half of this period, that is, during the last hundred years or so; quite recently -- in the last fifty years -- it has become of such supreme importance by the mastery it has got over the whole commonwealth that everybody ought to try to understand its character. The Power of the Banks comes to-day into the lives of all of us and largely affects the relations between different nations. Indeed, it has become so powerful quite lately that one of the principal things we have to watch in politics is the enmity which the power of the Banks has aroused and the way in which that power is being attacked.

The essential of banking lies in these two combined ideas: (1) that a man will leave his money in custody of another man when that other man has better opportunities for keeping it safe than he has; (2) that the money so left in custody _may_ be used by the custodian of the money without the real owner being very anxious what is being done with it, so long as he is certain to get it when he wants it.

The putting together of these two ideas -- which are ideas naturally arising in everybody's mind -- is the origin of all banking, and the moral basis upon which banking reposes.

A man has £1,000 in gold. He has to travel or to go abroad on a war, or is not certain of the safety of so large a sum if it is kept in his house. He therefore gives it into the custody of a man whom he can trust, and who, on account of special circumstances, can keep it more securely than he himself can. What the owner of the £1,000 wants in the transaction is to be certain of getting a part or the whole of his money whenever he may need it. He does not want the individual pieces of money. So long as he can get the value of them _or of part of them_ at any moment from the man to whom he gave custody of the original sum he is satisfied.

A good many other people feel the same necessity. The man who has special opportunities for looking after _all_ their sums of money collects them together and has them in his strong box in safe keeping. Those who have acted thus would be very angry if they found their money had been lost, or that when they came to ask for £20 or £100 out of their thousand pounds -- needing such a sum for the transactions of the moment -- the man in whose custody the whole lay was unable to let them have the £20 or £100 required. But so long as the _depositor_ (as he is called, that is, the man who hands over his money for safe custody) finds himself, in practice, always getting the whole or any part of his deposit on demand, he is content; _and will not be annoyed to find that the person in whose custody he left the money has been using it in the meantime_.

For instance: I might leave £1,000 in gold in the custody of someone who is better able than I to prevent its being stolen. I am saved all the trouble of looking after it, and I can call on a part of it or all of it whenever I like. If there were only myself leaving it thus with one friend, and it was a particular transaction between us two, that friend would be acting wrongly if he were to take my £1,000 and buy a ship with it, say, and do trade. No doubt he would earn a profit, and could say to me when I came back for £100 of it: "I am sorry that I cannot give you your £100, but I have used the money, without telling you, to buy a ship. The ship will earn a profit of £200 at the end of the year, and then you can have back your £100 if you like, and if you press me, I will even sell the ship and you shall have back the whole of your £1,000."

In that case I should naturally answer: "No one gave you leave to use my money. You have embezzled it, and you have acted like a thief."

But when a very great number of men entrust their money in this fashion, and do not specially stipulate that it should be left untouched, when there is a sort of silent understanding that, if whenever they want it, the money will be forthcoming, then they do not ask too closely what has been done with the whole of the sum in the custodian's hands. For if _very many_ people are thus "banking" their money with one safe custodian only a certain proportion will _at any one time_ want their money, and the rest can be used without danger of the "banker's" failing to meet any particular demand. Thus banking, that is, the use of other peoples' money, arises and becomes a natural process because it is of mutual advantage. The Banker can earn profits with that average amount of money which always remains in his hands, the depositors have their money safely looked after and may even share in the profit.