ficiency of
actual money held in bank reserves is multiplied many fold.[13]

The method of payment by bank drafts in domestic exchange reduces the
need for, or increases the efficiency of, money in just the same way
as does the use of checks. By the mutual credit of banks in different
parts of the country, very large payments may be made in both
directions with the movement of only the comparatively small amount
of physical money needed to pay the balance after the cancellation of
drafts, bills of exchange, and checks.

The use of bank notes reduces the amount needed of other kinds
of money more directly, tho not more effectively, than do deposit
accounts. Bank notes _are_ money, and so long as their amount is
limited by prompt redemption they circulate _instead of_ so much of
other kinds of money. Redemption is possible by the use of a reserve
of standard (or of legal tender) money very much smaller than the
amount of notes outstanding.

Sec. 12. #Productive services of banks.# There have always been some
erroneous ideas regarding the magic power of banks to multiply the
power of money. But there should be no more of mystery about
banking credit than about the nature of money itself. Banks are the
labor-saving machinery of finance. They gather loanable funds, reduce
hoarding, make money move more rapidly, and create a central market
between borrowers and lenders for the sale of credit. While not
creating more physical wealth directly, they add to the efficiency
of wealth; they simplify and quicken the movement of nearly all
commercial transactions. Banks perform incidentally a further service
in developing better business methods in the community. They enforce
promptness and exactitude in business dealings. In supplying credit to
enterprises, banks are constantly passing judgment on the collateral
security presented to them and on the soundness of the enterprises
that are seeking support. This gives to bankers great economic power,
capable at times of misuse in political and social affairs, especially
where a group of selfish men come to exercise a practical monopoly of
business credit in any community.

Sec. 13. #Income of banks.# The income of banks is drawn from different
sources, according to the size of the community and the nature of the
banks. While in the villages and smaller cities the commercial banks
perform a number of functions, in the larger cities they usually
specialize in a far greater degree. The