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The Common Sense of Political Economy; Wicksteed, Philip H.
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Book II,Ch.7

Thus we see that enormous economies in the use of gold as a medium of exchange are effected. The whole metallic reserve held by all the banks constitutes a very small fraction of the collective liability of the banks to pay gold on demand; for note that every depositor in every bank is entitled at any time to draw out the whole of his property in coin of the realm, or in Bank of England notes, which in their turn he may present at the Bank of England, demanding gold in exchange for them. Every one, then, is entitled to draw out the full amount of his balance in gold, and any one can actually do this as long as the machinery is working smoothly; but it would be impossible for every one to do it, because the immensely greater part of the property does not exist in the form of sovereigns or gold at all; it consists of all kinds of property and obligations, of a value equivalent, at the marginal terms of exchange, to the total sum which the public has the theoretical right to draw out in gold. It all exists, however. Every man's balance severally, and the whole amount of the deposits in the banks collectively, represent real property, and all this property is in the possession of the banks at every moment, to its full amount. It is the greatest mistake to suppose that the whole body of banking transactions reduces itself to mere entries and transfers in books, and that if the banker had simply squandered the property entrusted to him, everything would go on just the same so long as nobody knew it. For it is just because the property is there, and is most of it yielding revenue, that the banker is able to pay his staff and support his own expenses. The property of the clients, represented by their balances at the bank, is real property and is doing real work; and the revenues that accrue to it in virtue of that work are paying for all the privileges and conveniences that the clients enjoy. If five hundred people draw cheques on the same bank on the same day to the extent of £5000, and only 50 sovereigns, one per cent of the whole, are actually drawn out of the bank, nevertheless, each individual cheque has behind it a basis of actual property to which the drawee has received a valid title. If the bank is solvent, then even if it had to "stop payment," that is to say if it were unable to meet all the simultaneous claims for actual coin made upon it, the holder of credit in it would be the holder of actual property. Thus the man who pays a cheque, hands to his correspondent a document which gives him a substantial claim; and the sum of these substantial claims (unlike the formal right to draw coin) can be met simultaneously; for the holders of the cheques and credits in the bank are entitled, in the last resort, to enter into acknowledged and legal possession of miscellaneous property that is actually bearing revenue and is negotiable, like all other property, in the public markets. So when I receive a cheque in exchange for valuable possessions or services, though I do not thereby enter into possession of the commodities and services that I myself require, yet I do get actual property, not a mere pretence or symbol of property. The actual property I get is valued by some one else, and I can hold it until I find it convenient to exchange it for property that I value myself. Thus by the banking system a vast amount of miscellaneous claims and possessions other than gold are converted into "media of exchange" just as real as gold itself; for they mediate between the things I have and the things I want, and enable me to transform the one into the other without the necessity of a double coincidence between my wants and those of my correspondent. The whole mass of cheques which is exchanged day by day is therefore not an economy of "media of exchange" at large. It is a calling into partnership with gold, as a medium of exchange (but not as a standard of value), of an immense amount of other property. To regard the banking system of England as consisting in a cunning device to make sovereigns that only exist as entries in a book do the work of real sovereigns, is a fundamental misconception.