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.

The way in which the issue of notes by a banker prepares the way for the deposit of money with him is very plain.  When a private person begins to possess a great heap of bank-notes, it will soon strike him that he is trusting the banker very much, and that in re turn he is getting nothing.  He runs the risk of loss and robbery just as if he were hoarding coin.  He would run no more risk by the failure of the bank if he made a deposit there, and he would be free from the risk of keeping the cash.  No doubt it takes time before even this simple reasoning is understood by uneducated minds.  So strong is the wish of most people to see their money that they for some time continue to hoard bank-notes:  for a long period a few do so.  But in the end common sense conquers.  The circulation of bank-notes decreases, and the deposit of money with the banker increases.  The credit of the banker having been efficiently advertised by the note, and accepted by the public, he lives on the credit so gained years after the note issue itself has ceased to be very important to him.

The efficiency of this introduction is proportional to the diffusion of the right of note issue.  A single monopolist issuer, like the Bank of France, works its way with difficulty through a country, and advertises banking very slowly.  Even now the Bank of France, which, I believe, by law ought to have a branch in each Department, has only branches in sixty out of eighty-six.  On the other hand, the Swiss banks, where there is always one or more to every Canton, diffuse banking rapidly.  We have seen that the liabilities of the Bank of France stand thus: 

Notes L 112,000,000

Deposits L 15,000,000

But the aggregate Swiss banks, on the contrary, stand: 

Notes L 761,000

Deposits L 4,709,000

The reason is that a central bank which is governed in the capital and descends on a country district, has much fewer modes of lending money safely than a bank of which the partners belong to that district, and know the men and things in it.  A note issue is mainly begun by loans; there are then no deposits to be paid.  But the mass of loans in a rural district are of small amount; the bills to be discounted are trifling; the persons borrowing are of small means