40

A TREATISE ON MONEY

BK. I

as well as Bank-deposits. Since Notes never carryinterest, there is a greater presumption in their casethan in the case of Bank-deposits that they are heldas cash and not as a form of savings. There is also,in a modern economic community, a presumptionthat they are held as income-deposits rather than asbusiness-deposits, transactions between business menbeing mainly carried on by means of cheques.

There has been, indeed, during the past hundredyears a steady evolution away from the use of Notesto the use of Cheques ; and the proportions of Bank-deposits, which in any country we may expect torepresent Savings-deposits, Business-deposits and In-come-deposits respectively, depends on the stage inthis evolution which that country has reached. Inthe first stage Bank-deposits are mainly in the natureof investments, most payments being made by Notes.In the second stage Bank-deposits are partly used as ameans of holding cash, but are generally turned intoNotes when it comes to making a payment. In thethird stage business transactions are mainly done bycheque, the use of Notes being limited to wage pay-ments and petty cash. In the fourth stage wagepayments also are made by cheque, and Notes areemployed for little except petty cash and out-of-pocket expenditure. Most continental countries arebetween the second and third stage. Great Britainis in the third stage, but possibly on the eve of thefourth. The United States is between the third andthe fourth stage. The significance of Notes in a mone-tary system and the appropriate means of regu-lating their volume must obviously depend (thoughthis is not yet generally recognised) on the stage ofevolution which has been reached. The statisticalsignificance of fluctuations in the note-issue mustalso vary in the same way . 1

1 If in Great Britain we had statistics of the active note issue, thismight have much value as an index of the wages bill. At present no