When the man in the street says that a something is “as safe as the Bank of England,” it is no empty phrase. The safety of the Bank of England is ultimate, absolute safety. He associates the safety of the Bank of England with the safety of the nation itself. The Bank of England could fall only when the Empire itself fell. And that fall, in his conception, seems as remote as the fall of the skies. He would tell you, and tell you with all solemnity and earnestness, that he would rather have his money at the Bank of England than elsewhere. And if he were told that that is the very place where the joint stock banks keep their gold reserves, he would say, with equal seriousness: “That’s right.” His mind would then be at rest that all was absolutely right in the best of all banking worlds. CHAPTER V SOUND BANKING If it is indisputable, therefore, that the confidence of the individual, and therefore the confidence of the nation, is based in the soundness of banking, we must see if that confidence be justified or not. I have, indeed, already said that it is justified. I must give reasons why I think so. What is banking? What is soundness of banking? These terms must be defined. I do not know if a definition of banking has been given that is universally acceptable. I know what the vague conception of banking is, but if a precise, explicit definition has ever been given, agreed upon unanimously by economic theorists, and accepted as the right and only formula, I am ignorant of that fact. I consult Nuttall, and he describes a bank as an establishment which trades in money, by receiving, lending, exchanging, etc. He does not say it is an establishment which trades in credit, by receiving, lending, and exchanging credit, etc. This definition may be false and misleading, and Mr. Nuttall may have been deplorably ignorant of the functions of a bank, but as, in my opinion, it is as good a definition as I have met with in economic and financial works, I will accept it. At any rate, I consider it in no wise false or misleading. A bank trades in money. This is indisputable. A bank receives money. This is indisputable. A bank lends money. This is indisputable. A bank exchanges money. This also is indisputable. What money does it trade in? We know there are various kinds of money. Legal tender currency is but one kind of money. Cheques, bills of exchange, securities, and even commodities are other kinds of money. Even if the legislature declared that only legal tender shall be money, the legislature could not by this declaration alter the laws of nature and of economics. It can make one kind of money legal tender, but it cannot destroy the law that anything used for exchange purposes is money. If a beggar steals a watch and afterwards exchanges the watch for a decent shirt, the watch and the shirt become money. They perform the functions of money and the functions prove that they are money.