Chapters on the Theory and History of Banking

An excerpt from a review in The Economic Review, Volume 11:

THE late Professor Dunbar was engaged for some time before his death, in January of last year, in the preparation of a second edition of his valuable manual on banking. It was, unfortunately, left unfinished. The work, however, has been very satisfactorily carried out by Mr. Sprague. The book has been considerably enlarged, and its statistical information has been brought thoroughly up to date. Professor Dunbar's little manual is undoubtedly the best source to which any student of the subject can repair, who is not prepared to wade through the larger and more elaborate books on the subject; and, indeed, even those who have studied the works of Mr. McLeod and Mr. Gilbart will find their knowledge both supplemented and corrected on many important points by the study of this book of Mr. Dunbar.

The first seven chapters are devoted to the discussion and elucidation of the general principles of the subject, the last four to a sketch of the constitution and history of five of the great banks or banking systems of the world—the Bank of Amsterdam, the Bank of France, the National Banks of the United States, the Bank of England, and the Reichsbank of Germany. In dealing with the general principles of the subject, Professor Dunbar does not make the mistake made by so many financial writers of assuming on the part of his readers a comprehension of matters which certainly no one can comprehend unexplained, but which bankers and accountants understand after a fashion, or, at any rate, seem to understand from the sheer force of habit. Why, for instance, should the capital and the undivided profits of a bank be reckoned among its liabilities? In ordinary parlance they seem, on the contrary, to be absolutely synonymous with the resources which it possesses to meet every conceivable liability. Professor Dunbar explains that they are liabilities of an entirely different character from deposits and notes outstanding. Some further explanation, however, might, with advantage, have been given of the causes which have led to a classification that appears at first sight so puzzling. It arose, no doubt, out of the same exigencies which gave birth to the whole system of book-keeping by double entry. If a farmer, say, wishes to know not only what his total profits or losses for the year amount to, but also what they are separately from his sheep, his cattle, and his grain crops, his only, or at any rate his most convenient method of ascertaining this is to create fictitious personages under the names of ''sheep,'' ''cattle,'' and ''grain crops,'' and to debit these personages with the capital laid out in their several departments, and to credit them with the returns from it. It is thus comprehensible enough how the capital and undivided profits of a joint stock bank come to be looked on as the sum of its liabilities to those who have combined their resources for its establishment; and, as regards a private bank into which one individual may be supposed to have put all his resources, he must, for the purposes of book-keeping, regard himself in a double light, as at once his own debtor and his own creditor.

Banking is so wide and so varied a subject that it is, of course, impossible to do more than touch upon one or two of the matters dealt with in a book like the present. The explanation of the manner in which the clearing-house certificates were used in New York to allay panic in 1860 and 1884, and, with somewhat less success, in 1873, will be one of the most interesting features of the book to English readers, to whom, for the most part, these certificates have been something of a mystery. Ch. vii. deals with the matter in a lucid manner….