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NOTE Types of Warehouse Receipts

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Types of Warehouse Receipts

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Two kinds of warehouse receipts for deposit banks have developed over the centuries.

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One is the regular form of receipt, familiar to anyone who has ever used any sort of warehouse.

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A paper ticket on which the warehouse guarantees to hand over, on demand,

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the particular product mentioned on the receipt.

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For example, the Rothbard bank will pay to the bearer of this ticket on demand $10 in gold coin

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Banking, or Treasury Paper Money, or whatever.

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For deposit banks, this is called a note or bank note.

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Historically, the bank note is an overwhelmingly dominant form of warehouse receipt.

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Another form of deposit receipt, however, emerged in the banks of Renaissance Italy.

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When a merchant was large-scale and very well-known, he and the bank found it more convenient for

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And the warehouse receipt to be invisible, that is to remain as an open book account

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on the books of the bank. Then, if he paid large sums to another merchant, he did not

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have to bother transferring actual bank notes. He would just write out a transfer order to

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his bank to shift some of his open book account to that of the other merchant. Thus, Signor

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Medici might write out a transfer order to the RISI bank to transfer 100,000 Lira of

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his open book account at the bank to Signor Bardi. This transfer order has come to be

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known as a check and the open book deposit account at the bank is a demand deposit or

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checking account. Note the form of the contemporary transfer order known as a check. I, Maria

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Diane Rothbard direct the Bank of America to pay to the account of service merchandise $100.

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It should be noted that the bank note and the open book demand deposit are economically and legally equivalent.

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Each is an alternative form of warehouse receipt and each takes its place in the total money supply as a surrogate or substitute for cash.

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However, the cheque itself is not the equivalent of the bank note, even though both are paper

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tickets.

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The bank note itself is the warehouse receipt, and therefore the surrogate, or substitute

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for cash, and a constituent of the supply of money in the society.

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The cheque is not the warehouse receipt itself, but an order to transfer the receipt, which

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is an intangible open book account on the books of the bank.

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If the receipt holder chooses to keep his receipts in the form of a note or demand deposit

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or shifts from one to another, it should make no difference to the bank or to the total

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supply of money, whether the bank is practicing 100% or fractional reserve banking.

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But even though the bank note and the demand deposit are economically equivalent, the two

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Forms will not be equally marketable or acceptable on the market.

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The reason is that while a merchant or another bank must always trust the bank in question

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in order to accept its note, for a check to be accepted, the receiver must trust not only

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the bank but also the person who signs the check.

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In general, it is far easier for a bank to develop a reputation and trust in the market

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Economy, then for an individual depositor to develop an equivalent brand name. Hence,

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wherever banking has been free and relatively unregulated by government, checking accounts

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have been largely confined to wealthy merchants and businessmen who have themselves developed

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a widespread reputation. In the days of uncontrolled banking, checking deposits were held by the

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Medici's or the Rockefeller's or their equivalent, not by the average person in the economy.

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If banking were to return to relative freedom, it is doubtful if checking accounts would

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continue to dominate the economy.

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For wealthy businessmen, however, checking accounts may yield many advantages.

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Checks will not have to be accumulated in fixed denominations but can be made out for

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are precise and a large single amount, and unlike a loss of banknotes in an accident

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or theft, a loss of cheque forms will not entail an actual decline in one's assets.