tion of the book has for reasons of convenience been devoted largely to a descriptive outline of banking in various aspects, an understanding of which seems necessary to full comprehension of present banking problems and conditions, although, strictly speaking, they would not find a place in a treatise upon banking in the commercial or narrower sense of the term. These phases of the discussion having been completed, the way is paved for a relatively brief outline statement of the relation of the bank to the monetary system and of its function in the development of prices. The volume as thus presented embodies material which has for some years past been in use in the School of Business of Columbia University in the form of outline mimeographed notes. Owing to the increase in the membership of the introductory classes, it had been deemed advisable to put the material into printed form, and eventually it was determined to give it more formal shape as a textbook. It is hoped that the volume may be of service in other institutions where the problem of teaching has presented itself in somewhat the same form. In the preparation of the volume an equal division of the chapters has been made between the authors, but the final text is the result of joint revision and adaptation for which both are responsible. Sincere acknowledgment is made to Dr. W. H. Steiner, Assistant Director of the Division of Analysis and Research, Federal Reserve Board, for many valuable suggestions in the shaping of the volume. H. PARKER WILLIS. GEORGE W. EDWARDS. COLUMBIA UNIVERSITY, December, 1921. PREFACE TO SECOND EDITION IN PREPARING this second edition of Banking and Business the authors have taken into account the experience of many teachers in a wide variety of institutions who have used the book and have had the kindness to supply both text corrections and suggestions for alterations or modifications. In addition, the development of banking discussion and the changes in legislation which have taken place since the volume was first issued have seemed to make necessary the inclusion of some new material, including an additional chapter on "Bank Notes" and one on "Agricultural Credit Institutions." Experience has indicated the desirability of largely rewriting the treatment of foreign financing, financing the business man and banking abroad. Extensive changes have been made in these chapters. Due also to the fact that instructors particularly in those institutions which maintain courses in money and banking have felt that the scant treatment given to the subject of money impaired the serviceableness of the book, a slightly more extended analysis of some problems relating to money and prices has been afforded. Some other adjustments have also been made at a number of points to correspond with the modifications thus introduced into the chapter on Prices, Money and Banking. The thanks of the authors are cordially extended to all those friends and professional associates, too numerous to mention by name, who have thus lent their aid and have thereby so greatly contributed to the improvement of the volume. The book was recognized as experimental in its first form and, while use has seemed to justify the experiment, it has also helped to improve the presentation. In securing such improvement the thought of those who had tested the volume as a teaching medium in practice was of course indispensable. NEW YORK, February 1, 1925. H. PARKER WILLIS. BANKING AND BUSINESS CHAPTER I EXCHANGE OF GOODS I. EXCHANGE AND THE DIVISION OF LABOR. IF WE glance even casually at the modern organization of business, two features or elements in it present themselves as of striking suggestiveness: 1. Few persons are producing articles which they themselves want to consume or use. 2. Few persons sell or exchange their services or products directly for other services or products which they wish to consume or use. It is true that there are exceptions to these general rules. The farmer may raise vegetables for his own table as an incident to staple-crop farming. The worker in a shop may be allowed to take goods, which he wants, from the stock and be debited with them against the salary due him for services. Many other illustrations of direct production or direct exchange might be cited, but only a little reflection is needed to show that they are immensely in the minority as compared with the general body of business. Men work, but not as a rule for themselves; they trade, but usually for things they do not themselves consume. The facts just set forth lead to two conclusions or inferences which follow from the outstanding facts cited: 1. Business to-day is dependent upon the exchange of goods and services. Nearly every transaction involves or calls for a process of sale and purchase. |