CHAP。XI。

THEBANKOFENGLANDHASNOTTHEPOWERTOADDTOTHECIRCULATION。Fromthedescriptionwhichhasbeengiven（atp。21。）oftheemploymentofbanknoteswhenissuedandcirculatingoutof

thewallsoftheBank，itmustbeevidentthattheusesofthemaresuch，thepurposesforwhichtheyarewantedsodefined

andlimited，thatinnocasecouldtheBank，byitsownvolition，addonehundredthousandpounds，perhapsnotonehundred

poundstotheamountalreadyincirculationamongthepublic。IdonotmeanthattheBankmightnotenterintosome

spontaneousoperationwhichshouldbeofsuchanatureastore—quirenotestopassoutofitshandswithoutbeingreturned

onthesameorthefollowingdayintheshapeofdepositsorofademandforbullion。Thenatureofthetransactionmightbe

suchastorequirealodgementofthebanknotesintheexchequerorinthehandsofagentsorofbankersforafewdays。

WhatIdomeantosayis，thatthenoteswould，insuchcase，inevitablyreturntotheBankasdeposits，or，whatcomestothe

samething，beidleinthetillsofthebankers，withouthavingperformedanyofthefunctionsofmoneyinthetransactionsof

purchaseorofpayment，distinctfromthattowhichtheyhadbeenspecificallyapplied。Iquotedonaformeroccasion（16）an

opinion，ofMr。Gurney’sdeliveredin1833，thatwhilethetransactionsofLondonareabundantlysup—pliedwithnotes，theeffectofanadditional5，000，000l。wouldbe，thatitwouldremaininoperativeorratheridleinthetillsofthebankers。IntheevidencebeforetheCommitteeof1840onBanksofIssue，thequestionofthepoweroftheBanktoincreasethe

circulationisraisedinaformwhichadmitsofafurtherillustrationofthenegativeoftheexistenceofsuchpower。Itistobe

borneinmindthatthefollowingquestionsandanswersinvolveareferencetotheeffectofthesupposedoperationofthe

BankofEnglandonprices，aswellasontheamountofthecirculationandontherateofinterest。MyimmediateobjectinthequotationistoshowthattheBankcouldnotaddbytheoperationtotheamountofitsoutstandingnotesincirculation。ThefollowingquestionsbySirRobertPeel，andanswersbyMr。Page，hadbeenprecededbyaquestionwhichassumedtheBanktohave20，000，000l。ofnotesincirculation，and10，000，000l。ofcoininitscoffers。Qu。832。Supposingthe20，000，000l。ofnotesissueduponthediscountofbillsofexchangeoradvancestogovernment

remainedthesame，andthattheBankweresuddenlytothrow5，000，000ofsovereignsintoactivecirculation，asadvancesuponlandedsecurities，wouldtherebenoeffectproduceduponthecurrencyofthecountry？Yes，iftheyremainedouttherewouldbeaneffectonprices;buttheywouldsooncomeback。Therewouldinthatcase，in

thefirstinstance，benoalterationinthetotalquantityofmoneyasadministeredbytheBankofEngland，buttheBank

woulddojustwhataprivatebankerdoeshewouldemploythemoneyhehasindepositinthepurchaseofsecuritieswithout

increasinghisliabilities;butthatstateofthingswouldneverlast;becauseeitherthosesovereignswouldbewantedinthe

circulationortheywouldnot;theymostcertainlywouldnot;becausebeforethattimetheywerenevercalledfor，and，not

beingwantedinthecirculation，theywouldreturntotheBanktoincreasethedeposits，andthentheBankwouldbepreciselyinthesituationIhavementionedbefore;theywouldincreasetheirsecuritiesandincreasetheirliabilities。833。TheywouldreturntotheBankbecausetheywouldhavedepreciatedthecurrency;butwouldnottheyaffectprices

whiletheyremainedout？

Theywouldnotremainoutforanylengthoftime。IfMr。PagehadconfinedhimselftothatpartofhisanswerwhichIhavemarkedwithitalicshewouldhavebeencorrect。

Thesovereigns，notbeingwantedinthecirculation，wouldreturntotheBanktoin—creasethedeposits;andthen，ifthe

followingquestion，insteadof"833。TheywouldreturntotheBankbecausetheywouldhavedepreciatedthecurrency;but

wouldtheynotaffectpriceswhiletheyremainedout？"whichassumesthattheywouldhaveenteredintothecirculationas

currencyifinsteadofthiserroneousassumption，thequestionhadbeenwhyorinwhatsensethesovereignswouldnotbe

wantedandwouldreturntotheBank，theproperanswerwouldhavebeen，thatthecirculationofsovereignsiswanted

chiefly，ifnotexclusively，forpurposesofincome，includingwages，andofexpenditure，andnotasinstrumentsfortransfers

ofcapital。Itisintheretailtradebetweendealerandconsumerthatcoinsareprincipallyused。Now，asitdoesnotappear

whyanyadditionaldemandintheretailtradeshouldbecausedbythisforcedissueofsovereignsbythewayofloanon

mortgage，theywould，inallprobability，asbeingmostinconvenientinstrumentsforamereadvanceofcapital，returntotheBankasdeposits。By，thesuppositionitisaforcedoperationoftheBank。Ineffectingitspurposeofmakingadvancestothatextenton

mortgage，itwouldhavetodisplacetheexistingcapital（becausethehypothesisassumesthatthingswereinasoundand

quiescentstate，inotherwords，inequilibrio，therebeingnonewcircumstancestoinducefreshborrowersonthat

descriptionofsecuritiesattheexistingrateofinterest）whichhadbeenpreviouslyadvancedandwasabsorbedinmortgages。

Thiscouldnotbeeffectedwithoutagreatreductionintherateofinterestonthatdescriptionofsecuritiesbywayofa

sufficientinducementtofreshborrowers，ortotheexistingmortgageestopayofftheirloanandtoborrowfromtheBankatthereducedrate。Themortgageesbeingunexpectedly，andtotheminconveniently，paidoff，wouldofcourseseekotherinvestments;，but

thesetheywouldnotreadilyfind，unlessbyoffersofcapitalatastilllowerrateofinterest。Thiswouldonlyremovethe

difficultyoffindingemploymentforthecapitalbyasinglestep，orrathermerelyshiftit;forwhateversecuritieswere

purchasedbythecapitalistswhosemortgageshadbeenpaidoffandtransferredtotheBank，wouldsetafloatjustsomuchcapitalaswouldbeproducedbythetransferofthosesecurities。TheresultwouldnotbemateriallyvariedifthesupposedadvancesmadebytheBankonmortgageweretopartieswhowere

buyinglandspeculativelyorotherwise。Therewould，ofcourse，whiletheoperationwasinprogress，beatemporaryrisein

thenumberofyears’purchaseoflandedproperty。Inthiscasethesellersofthelandwouldprobably，afterpayingoff

incumbrances，seekinvestmentfortheremainderoftheamountinsecuritiesathomeorabroad，andwould，inthefirst

instance，withthemortgageeswhowerepaidoff，depositthesovereignssoreceivedattheirbanker’s。Ineitherorboth

cases，thedepositsintheBankofEnglandorotherbankswouldbeincreased。Thedepositssoaccumulatedwould，bythe

operationofagreatlyreducedrateofinterest，graduallyfindemploymentascapitalathomeorabroad，withoutnecessarily

havinginthemeantimeproducedtheslightesteffectinincreasingtheamountofthecirculationordepreciatingthecurrency，asbythequestionwassupposed，inanyothersenseatleastthaninreducingtherateofinterest。IhavebeentheratherinducedtoremarkupontheopinionofSirRobertPeel，asconveyedbyhisquestionNo。832。，because

itshouldseemthattheexaminationsoftheCommitteeonBanksofIssue，ofwhichhewasamemberandinwhichhetook

part，hadnotshakenhisbeliefthatitwasinthepoweroftheBank，byanattemptataforcedissue，toin—creasetheamount

ofthecirculationeitheringoldorbanknotes，andsotodepreciatethecurrency。Onthelastdayofthesessionof1842，Sir

RobertPeel，afterremarkingonthetendencyoftheimprovementseffectedbyhistarifftomitigatetheexistingdistress，

concludedwithsaying，"Iadmitthattherearemodesbywhichatemporaryprosperitymightbecreated。Imightcreateatemporaryprosperityby

theissueof1l。notes，andbyencouragingtheBanktomakelargeissuesofpaper;butsuchaprosperitywouldbewhollydelusive。Itismuchwiser，inmyopinion，toabstainfromtheapplicationofthestimulus。"（17）Theeffectoftheissueoffivemillionsbeingin1l。notesinsteadofsovereignswouldbesofar，andonlysofardifferent，that

althoughtheywouldnot，providedtheywereissuedonsecurities，formanadditiontotheamountofthecirculation，there

mightbesuchapreferenceonthepartofthepublicfor1l。notesoversovereigns，thatgoldcoinwouldgobacktotheBankinsteadofthesmallnotes。Itwouldappearfromtheconclusionofthespeechjustquoted，andfromhisexaminationofMr。Page，thatSirRobertPeelis

ofopinionthataforcedissueofsovereignsorof1l。noteswouldbemostefficacious，butthatlargeissuesofpaper

generallybytheBankunderencouragementfromgovernment，wouldinthenextdegreebeeffectual，andserveasastimulusincreatingatemporaryprosperity。Now，whatevermaybetheultimatepermanenteffectsofafallintherateofinterestontheprosperityofthecountry，itis

quiteclearthattemporaryprosperityisnotthenecessaryorimmediateconsequenceofagreatlyreducedrate。Atthetime

whenSirRobertPeelmadetheremarkwhichIhavequoted，namely，inAugust，1842，therateofinteresthadfallenbelow

whatithadbeenforseveralyearsbefore，andmostassuredlynothinglikeareturnofprosperity，howevershort—lived，had

yetmanifesteditself。Hecannot，therefore，anylongerhavesupposed，whatevermayhavebeenhisimpressionwhen

examiningMr。Pagetwoyearsbefore，therateofinterestbeingthenstillcomparativelyhigh，thatmereadvanceson

securities，thatis，loansordiscountsbytheBank（alwaysassumingthatthesecuritiesareunexceptionable）couldhavethe

desiredeffect。Howhewouldhaveproposedtheextraissuetobemade，withtheviewofcreatingtemporaryprosperity，doesnotappear。Theobjectoftracingthusfartheoperation，hypotheticallysuggestedbySirRobertPeel，istoshowthattheBankof

Englandcannot，anymorethanthecountrybanks，atitspleasure，orforthepurposeofemployingproductively，thatis，in

securities，alargerthanusualproportionofitsdepositsorofitsbullion，causeanenlargementofthecirculation;andthatthe

usualphraseology，bywhichtheBankofEnglandandthecountrybanksaresaidtoenlargetheircirculationasavoluntary

act，isincorrect，sofarasimplyingapowerwhichtheydonotpossessofdirectlyaddingtotheamountofbanknotes

remainingoutincirculation，passingfromhandtohandamongthepublic，andperformingthefunctionsofmoneyindailytransactions。Itispossiblethat，coincidentlywiththisoperationoftheBankinasuddenforcedadvanceof5，000，000l。onmortgage，

theremightbecircumstancesinprogress，suchasanextensionoftradeandariseofprices，orastateofdiscreditofcountry

bankpaper，whichmightabsorbapartoftheextrasumissuedbytheBank;inwhichcaseapartonlyofthatextrasum

wouldreturntotheBank，someofitasdeposits，andsomeofittobeexchangedfornotes，thegoldnotbeingwantedfor

internalpurposes。But，underthecircumstancesheresupposed，anincreasedamountofbanknoteswould，butforthisoperationoftheBank，havebeencalledforth，eitherbydepositorsorbydiscounts，orbyaninfluxofbullion。Theconclusionfromtheviewherepresentedis，thatneitherthecountrybanksnortheBankofEnglandhaveadirectpower

（theiradvancesbeingonsecurities，andthepaperconvertible）ofenlargingtheircirculation;andthattheinference，fromthe

merefactofanincreaseordiminutionoftheamountofbanknotesincirculation，asbeinganindicationofadesigned

enlargementorcontractionofissuebytheBankofEnglandtotheextentofthedifference，proceedsonafalseanalogyby

neglectingaconsiderationofthedistinctionbetweenissuesusedsynonymouslywithadvances"onsecurities，"andissuesof

governmentbanknotesorassignats。Itisonlythelatterdescriptionofcirculationofbanknoteswhichadmitsofbeing

increasedinamountatthewilloftheissuers。

CHAP。XII。

ONTHECONNECTIONBETWEENTHEAMOUNTOFTHECURRENCYANDTHEPRICESOFCOMMODITIES。AgreatpartoftheexaminationofwitnessesbytheCommitteeoftheHouseofCommonsonBanksofIssuein1840was

directedtotheelicitingofopinionsastothetermsbywhichthevariouskindsofinstrumentsofexchangeshouldbe

designatedandclassified。Thewitnesseswereseverallycalledupontodefinethesenseinwhichtheyusedtheterms"money，

currency，andcirculation，"andtosaywhethertheyincludeddepositsintheBankandbillsofexchangeunderanyoralltheseterms。Theimportancewhichwasattachedtotheattemptatsettlingthosedefinitionsseemstohavearisenfromanopinionwhich

prevailedevidentlyamongthemembersoftheCommittee，（18）that，byarrivingataconclusionastowhatpartofthevarious

formsofpapercreditshouldbeconsideredexclusivelyasmoneyorcurrency，conferringapowerofpurchase，some

criterionortestmightbefoundoftheinfluenceofoneoftheprincipalelementsuponwhichnotonlythestateoftradeand

credit，butalsogeneralpricesdepend;itbeingassumedthatcommodities，althoughliableineachparticularinstancetobe

influencedbycircumstancesaffectingthesupplyanddemand，aremoreorlessunderadirectinfluencefromvariationsinthe

quantityofmoneyorcurrency。Andthesameassumptionofadirectagencyofthequantityofmoney，accordingtothe

assumeddefinitionofit，onprices，willbefoundtobeeitherexpressedorimpliedinthevastmajorityofthenumberlesspublicationstowhichthecurrencyquestionhasgivenrise。（19）Anincreaseordiminutionoftheamountofbanknotesisevidentlyconsidered，notonlybytheprofessedadherentsofthe

doctrineofthecurrencyprinciple，butbyalargeproportionofthepublicwhotakeaninterestinthesubject，tobe

analogous，intheeffectsonmarkets，toalterationsinthequantityofagovernmentcompulsorypaper;or，inotherwords，

theyconsiderthatpricesinsuchcasesareunderadirectinfluencefrom，andaffectedinthesamemannerby，variationsintheamountofbanknotesincirculation，whichtheydesignateindiscriminatelyaspapermoney。Thiserroneousimpressionarisesfromaneglectoftheconsiderationofthedifferenceinthemannerandpurposeofthe

issue。Ihavenotmetwithaninstanceintheinquirybythecommittees，orinthenumerouspublicationswhichhaveappeared

onthesubjectofthecurrency，ofanyattentionhavingbeenpaidtothisparticularpoint。Indeed，thecontextinallofthem

seemstoassumethatthereisnodifference，andthatthereforeanyattemptatexplanationwouldbeaworkof

supererogation。Thus，Mr。Porterwho，inthechapteronCurrency，inhishighlyvaluablework"OntheProgressofthe

Nation，"attributestotheamountofthecirculationgreatinfluenceonprices，contentshimselfwithobserving，"Itisnot

necessarytoexplain，atanylength，inwhatmannerexcessiveissuesofcurrencytendtoraisethegeneralpricesofgoods。"（20）Nowanexplanation，howeverbrief，ofthispointwasexactlythethingwanted。AndIcannothelpthinking，thatifhehad

sufferedhimselftopauseandreflectuponit，hecouldhardlyhavefailedtomodifytheopinionhehasthereexpressedofthe

influenceoftheamountofthecurrencyonprices，andhewouldpossiblyhavebeenledtodistrustthecorrectnessofthe

viewpresentedbythetablewhichhehasinsertedinillustrationofhisopinionofthatconnection。

Amoment’sconsiderationwillservetoshowtheimportanceofthedistinctiontowhichIhaveherealluded。

Whenagovernmentissuespapermoney，inconvertibleandcompulsorilycurrent，itisusuallyinpaymentfor1。ThepersonalexpenditureoftheSovereignorthegoverningpower。

2。PublicWorksandBuildings。

3。SalariesofCivilServants。

4。MaintenanceofMilitaryandNavalEstablishments。ItisquiteclearthatpapercreatedandsopaidawaybytheGovernment，notbeingreturnabletotheissuer，willconstitutea

freshsourceofdemand，andmustbeforcedintoandpermeateallthechannelsofcirculation。Accordingly，everyfreshissue，

beyondthepointatwhichformerissueshadsettledinacertainriseofpricesandofwages，andafalloftheexchanges，is

soonfollowedbyafurtherriseofcommoditiesandwages，andafalloftheexchanges;thedepreciationbeingintheratiooftheforciblyincreasedamountoftheissues。（21）Itwillhenceappearthatthedifferencebetweenpapermoneysoissuedandbanknotessuchasthoseofthiscountryconsists，

notonlyinthelimitpre—scribedbytheirconvertibilitytotheamountofthem，butinthemodeofissue。Thelatterareissued

tothoseonlywho，beingentitledtodemandgold，desiretohavenotesinpreference;anditdependsupontheparticular

purposesforwhichthenotesareemployed，whetheragreaterorlessquantityisrequired。Thequantity，therefore，isan

effect，andnotacauseofdemand。Acompulsorygovernmentpaper，ontheotherhand，whileitisinthecourseof

augmentation，actsdirectlyasanoriginatingcauseonpricesandincomes，constitutingafreshsourceofdemandinmoney，depreciatedinvalueascomparedwithgold，butofthesamenominalvalueasbefore。Inaconvertiblestateofthecurrency，giventheactualandcontingentsupplyofcommodities，thegreaterorlessdemandwill

depend，notuponthetotalquantityofmoneyincirculation，butuponthequantityofmoneyconstitutingtherevenues，

valuedmgold，ofthedifferentordersofthestateundertheheadofrents，profits，salaries，andwages，destinedforcurrentexpenditure。Dr。AdamSmith，inthepassagewhichIhavebeforequotedfromhim（atp。34。）observes："Thevalueofthegoods

circulatedbetweenthedifferentdealersnevercanexceedthevalueofthosecirculatedbetweenthedealersandthe

consumers;whateverisboughtbythedealersbeingultimatelydestinedtobesoldtotheconsumers。"Assuredly，then，the

pricesatwhichthecommoditieshavegoneintoconsumption，theresultofthemconstitutingthereturnforthecapitalexpendedintheproduction，maybeconsideredwithgreaterproprietythananyotherdescriptionasgeneralprices。Thecostofproductionwilldeterminewhetherandtowhatextentthesupplywillbecontinued，buttheextentofthe

effectualdemand，inagivenstateofthesupply，willbemeasuredbythepriceswhichtheconsumersmaybeableandwilling

topay。Now，thepowerofpurchasebytheconsumersdependsupontheirincomes;andthemeasureoftheextentandofthe

exerciseofsuchpoweris，ashasjustbeenobserved，inthatportionoftheirrevenueswhichisdestinedforexpenditureinobjectsofimmediateconsumption。Oftherevenuesorincomesofthecommunitydevotedtoimmediateexpenditure，byfarthelargestproportionconsistsof

wages，fromthoseoftheskilledartizan，whogetshis5l。aweekorupwards，tothoseofthedaylabourersandcommon

workmen，whoseearningswiththeirfamiliesarefrom20s。to7s。aweek。Anyincrease，accordingly，ofincomes，ofwhich

wagesconstitutethelargestpart，willraisegeneralprices，andafallofwageswilldepressthem，supposingnoalterationinthecostofproduction，orintheactualandcontingentsupply。Ifpricesofoneormorearticlesofconsumptionfallfromdiminisheddemand，andcontinueforanylengthoftimebelowthe

costofproduction，thesupplieswillfalloffuntil，inconsequenceofthediminutionofsupply，thepricerises，soasagainto

coverthecost。Orifthecostofproductionisraisedbypermanentcauses，themeansoftheconsumersbeinglimitedifthe

articleisnotanecessaryoflife，andifthesupplyfalloffsoastoraisetheprice，therewillbeapermanentfallingoffofthe

demand，andlessofthearticlewillbeproducedandconsumed。But，giventhecostofproduction，and，barringtheeffectof

vicissitudesoftheseasons，andothercasualtiesaffectingthesupply，thequantityconsumed，atcertainprices，whichisthe

testofeffectualdemand，will，asIhavesaid，dependuponthatportionoftheincomesofthedifferentordersofthecommunitywhichmaybedestinedforexpenditureinimmediateobjectsofconsumption。Asaninstanceofthefalsepracticalconclusionstowhichthecurrencytheoryleads，intheviewtakenofthedistinction

betweenbillsofexchangeandbanknotes，andinoverlooking，asitdoes，thedistinguishingfeaturesofcredit，andcapital，

andcurrency，andbetweenwholesaleandretaildealings，IhavetocitethefollowingpassagefromMr。Norman’sLettertoCharlesWood，Esq。（page43。）proposingtoshow，accordingtohisview，theusualeffectofbillsofexchangeonprice："AbuyscottonofBat10percentinadvanceonthepreviousprice，payableatthreemonths，andgiveshisacceptancefor

theamount。Atthecloseofthisperiod，orafteroneormorerenewals，thebillmustbepaidoutofthecurrencyinexistence;

andifthereisnotenoughmoneytosustainsuchaprice，afallinpricesmustensue，andBwillsufferfromhisbargain。But

further，iftheadvancedpricehasbecomegeneral，astimuluswillbegiventotheimportationofcotton，achecktoits

exportation，ortothatofarticlesmanufacturedfromit，andthefinalresultwillprobablybeafallbelowtheoriginalprice，

commensuratewithorperhapsgreaterthantheoriginalrise。Thisimaginarycasemaybetakenasafairrepresentationoftheusualeffectofbillsofexchangeonprice。"Thebillsofexchangeareheresupposedtohaveaneffectonprice，thatis，tobeacauseofprice;whereastheveryreverseis

thefact。Thebillsofexchange，sofarfrombeingacause，aretheeffectofprice。Theprospectofadvantagesuppliesthe

motive，andthecreditofthebuyerconstitutesthepowerofpurchase，whilethebillofexchangeisamerewrittenevidence

oracknowledgmentofthedebt，accompaniedwithapromisetopaytheamountatsomedefiniteperiod。IfA，thebuyerat

theadvancedprice，hasnotunder—estimatedthesupply，orover—estimatedtheconsumption，themanufacturermustgivethe

advancedprice，and，byhisacceptanceorcheque，enableAtodischargehisacceptanceatthetimeofitsbecomingdue，with

aprofit，or，bythesupposition，withoutloss。ButifAhasbeenmistakeninhisviewofthesupply，actualandcontingent，

comparedwiththerateofconsumption，thepricewillfall，andhewillsufferfromhisbargain;andifhetradesuponalargeproportionofborrowedcapitalandthelossbeheavy，hewillfail。Somuchoftheresults，inthealternativeofthetwosuppositions，isclearenoughaccordingtotheordinarycourseof

business。But，accordingtoMr。Norman’sview，ifIunderstanditrightly，thepricewouldfall，notbecausethebuyerhad

beenmistakeninhisviewoffactsandinhisreasoningastothesupplyrelativelytotherateofconsumption，butbe—causetherewasnotenoughmoneytosustaintheadvancedprice。Mr。Normandoesnotattempttoshowthatthequantityofmoneyrequisitetosustaintheadvancedpriceofcottoninthe

casesupposedisnecessarilydependentontheaggregateofcoinandbanknotes，whichheconsidersasthecurrencyin

existenceinthecountry，andoutofwhichhestatesthatthebillgivenbythebuyerofthecottonmustbepaid。Heseemsnot

tobeawarethatthequantityofmoneyapplicabletothepurchaseofcottonandcottongoodsfromtherawmaterialinthe

handsofthegrower，tothefinishedarticleinthehandsoftheconsumers，isdependentuponthatportionofthemoney

incomesoftheconsumersathomeandabroad，whichtheyareableandwillingtoexpendinthesatisfactionoftheirwants

forcottonclothingandtheotherusesofcottongoods。Allsalesandpurchasesfromthoseofrawcottoninthehandsofthe

planters，tillthefinishedgoodsfindtheirwayintothehandsoftheconsumers，mustintheaggregatereachthatamount，and

cannotbutbymiscalculationofemployersofcapitalandlabour，inthedistributionandthemanufacturethroughthe

intermediatestages，exceedthatamount，whatevermaybethemultiplicationofbillsarisingoutoftheintermediatetransactions。Theprincipleoflimitation，therefore，tothemaintenanceofanadvancedpriceofanyparticulararticle，mconsequenceof

actualorapprehendeddeficiencyofsupply，isnotthequantityofmoneyinexistenceinthecountry，butthequantityof

moneyinthehandsorpocketsoftheconsumersdestinedforexpenditureinthatarticle。Andtheeventualfallofpricewill

notbefromdeficiencyofthequantityofcurrencyinthecountrytosustaintheadvance，assupposedintheforegoing

passage，butfromtheinabilityorunwillingnessoftheconsumertopaytheadvancedprice，andfromarestoration，actualorexpected，oftheusualoragreatersupply。ButthenfollowsapassagewhichshowsthatinthatwhichIhavejustquoted，theeffectascribedtobillsofexchangeon

pricesissupposedtoarisefromthecircumstance，notoftheircreation，butoftheirchanginghandsbyindorsements："A

largeproportionofbillsaredrawnandpaidwhichhavenoeffectonthecurrencywhatever。ThusletAsellcoffeetoBat

threemonths，andatafaircurrentprice，drawfortheamount，andkeepthebillinhisportfoliountildue;itisclearthatthe

resultwillbethesameasifhehadgivenasimplecreditforthesameperiod。Theeconomyintheuseofmoneywill

commencewhenhemakesapaymenttoCbymeansofanindorsement，andwillberepeatedasoftenasthebill，byarepetitionofthisprocess，changeshands。Thusevenpurchasesoncredit，atadvancedprices，againstwhichbillsaredrawn，maybemadewithoutanynewcreationofmoney，andwithoutthenecessityofemployinganeconomisingexpedient。"Theadvanceinthepricepaidforcottoninthefirstofthehypotheticalcasesstated，andthefairpriceatwhichthecoffeeis

inthesecondcasesupposedtohavebeensold，shouldseemuponthefaceofthestatementstobeessentialconditionsofthe

cases;butthetwoconcludingsentencesarecalculatedtoremovethatimpression，andtoleadtotheinferencethattheprices

paidhavenothingtodowiththequestion，howfarbillsofexchangedoordonotanswerthepurposesofmoneyinasupposedeffectonprices。ThecasesonlyprovewhatIhavebeforeendeavouredtoshow，thatpurchasesandsalesbetweendealersanddealersmay

be，andareinagreatmajorityofcases，transactedthroughthemediumofcredit，ofwhichbillsofexchangearethewritten

evidence;thesuccessiveindorsementsaddingtothecreditoftheoriginalnamesonthebills，andservingthepurposeofso

manytransfersofcapital。AndIhaveonlyreferredtothecasesstatedbyMr。Normanasbearingonthequestionofthe

connectionofthecurrencywithprices，inordertopointoutthegraveerrorofhisdoctrine，inascribingtobillsofexchangeaneffectonprices，insteadofviewingthemasaneffectofprices。Thesameerror，beingnolessthanthatofsubstitutingcauseforeffect，isobservableinastillgreaterdegree（becausemore

importanceisattachedtoit）inthe`influenceascribedbythecurrencytheorytotheamountofthecirculation，thatis，of

banknotes，onprices。Itisanerrorwhichpervertsthereasoning，anddistortstheviewoffacts，ineveryattempttoapplythe

theoryofthecurrencyprincipletotheactualcourseofcommercialaffairs。

CHAP。XIII。

ONTHECONNECTIONBETWEENTHERATEOFINTERESTANDPRICES。OntheStockExchange，andintheMoneyMarket，thetermmoneyisusedsynonymouslywithcapital。Abundanceand

cheapnessofmoneymeanabundanceofcapitalseekingemployment，andalowrateofinterestastheconsequence;as，on

theotherhand，scarcityofmoney，andtightnessofthemoneymarket，meancomparativescarcityofdisposablecapital，anda

consequentadvanceintherateofinterest。Andwhenconfinedtooperationsonthestockexchangeorinthemoneymarket，

thetermssoappliedbeingtechnicalandperfectlyunderstoodamongthepartiesusingthem，leadtonoinconvenienceeither

inpracticeorinreasoning。But，inallgeneralreason—ingsonthesubjectofthecurrency，andintheapplicationofthemto

proposedregulationsofbanking，theambiguityofthetermvalueofmoneyorofthecurrency，whenemployed

indiscriminatelyasitis，tosignifybothvalueinexchangeforcommodities，andvalueinuseofcapital，isaconstantsourceof

con—fusion：accordingly，inmanyofthewritingsonthesubject，andinmuchoftheevidencegivenbeforetheBanking

Committee，abundantinstancesmaybefoundinwhichpartiesusingthetermsappeartohavetheirmindsfloatingbetweenthetwomeanings，andtocomeinconsequencetoanythingbutclearconclusions。Iwillnotherestoptopointoutthefallaciousinferencestowhich，onthegeneralsubject，thisambiguoususeoftheterms

necessarilyleads。Myimmediatepurposeistoremarkuponitonlyasrelatestotheinquiryhowfartheabundanceorscarcity

ofmoney，inthelanguageofthemoneymarket，orinmorecorrectandlessmistakeableterms，aloworhighrateofinterest，

iscalculatedtoexerciseadirectinfluenceonthepricesofcommodities。Thecommonlyreceivedopinionis，thatalowrate

ofinterestiscalculatedtoraiseprices，andahighratetodepressthem。Mr。GilbartinanarticleintheWestminsterReview

forJanuary，1841，thusexplainstheeffectswhichheascribestotheabundanceorscarcityofmoneyinthestockexchange

andmoneymarket，useoftheterm，meaningcapital："Speculatorsandmerchantshavealwayssomepeculiarreasonfor

dealinginonecommodityratherthananother;butthefacilityofobtainingthemoney（i。e。，theuseofcapital）isthemoving

causeofthespeculation，andthepriceofeachcommoditywilladvanceaccordingtothequantityofmoneybroughttobear

onthatparticularmarket。"Sofarfromitsbeingtruethatthefacilityofobtainingmoney（alwaysunderstoodonsufficient

securities）isthemovingcauseofspeculationincommodities，Mr。Gilbartwouldfinditdifficulttopointoutasingle

instancewherethemerefacilityofborrowingonsufficientsecurityhasbeenthemovingcauseofanyconsiderablespeculationincommodities。Itmaybeworthwhile，bywayofexhibitingthemodeinwhichadvancesbytheBankofEngland，unattendedwithan

increaseofthecirculation，maybesupposed，accordingtothedoctrinewhichishereunderexamination，toactuponthepricesofcommodities，torefertothefollowingfurtherextractfromMr。Gilbart’sreview："Again，supposethecirculationisatitsproperamount，andtheBankshouldpurchaseamillionofexchequerbills，thenotes

thusputincirculationnotfindingimmediateemploymentmightbereturnedtotheBank，andbelodgedondeposit。Here

therewouldbenoincreaseinthecirculation，butanincreaseofamillioninthedeposits。Apowerofpurchasetothe

extentofamillionsterlingwouldhavebeencreatedbytheBank，andtheeffortsofthedepositors，tomakethemost

advantageousinvestments，wouldhavetheeffectofadvancingthepricesofcommodities，andofstimulatingaspiritof

speculation;andshouldtheBankconsiderthisincreaseinthedepositsasufficientreasonforaddinganothermilliontothe

circulation，thisadditionalmillionmightalsocomeback，andbeaddedtothedeposits;thusapowerofpurchasetothe

extentoftwomillionswouldbecreated，andaspiritofspeculationwouldbestillfurtherpromoted，withoutanyadditioninthemonthlyreturnstotheamountofthecirculation。"Thismightbetakenforacaricatureofthenotionofthepowerofpurchase，whichseemedtobesoprevalentinthemindsof

someofthemembersoftheCommittee。Apowerofpurchasemightthusdoubt—lessbecreated;butwhyshoulditbe

directedtothepurchaseofcommoditiesiftherewasnothinginthestateofsupply，relativelytotherateofconsumption，to

affordtheprospectofgainonthenecessaryeventualresale？Thetruthis，thatthepowerofpurchasebypersonshaving

capitalandcreditismuchbeyondanythingthatthosewhoareunacquaintedpracticallywithspeculativemarketshaveany

ideaof。（22）Theerrorisinsupposingthedispositionorwilltobeco—extensivewiththepower。Thelimittothemotivefortheexerciseofthepowerisintheprospectofresalewithaprofit。Mr。Bosanquet，inatractentitled，"Metallic，Paper，andCreditCurrency，"containingmuchvaluablein—formationand

ingeniousreasoningonthosetopics，whilstagreeingwithme（23）astotheabsenceofanydirectinfluenceoftheamountof

thecurrencyonprices，attachesgreatimportancetotheinfluencewhichheascribestotherateofinterestonthepricesof

commodities。Atthetime，however，whenhewrote，whichismorethantwoyearsago（andthesameremarkappliestoMr。

Gilbart），therateofinterestwasnotsolowasithassincebeen，anditmayperhapsbeconsideredhardlyfairtomakeuseofrecentexperienceincommentinguponopinionsdeliveredundersuchdifferentcircumstances。Itisnot，however，asjudgingbytheeventthatIhavetoremarkuponMr。Gilbart’sandMr。Bosanquet’sopinionsonthis

point。Myreasonforreferringtothemis，thattheystate，inamannermorepositiveandde—tailedthanIhavemetwithin

otherwriters，whattheyconceivetobethemodeofoperationofvariationsintherateofinterestonpricesofcommodities。

Mr。Bosanquetobserves（p。73。）："Weretherateofinterestreducedaslowas1percent，capitalborrowedwouldbeplacednearlyonaparwithcapitalpossessed。"Thatacapitalborrowedatthat，orevenalower。rate，shouldbcconsiderednearlyonaparwithcapitalpossessed，isa

propositionsostrangeashardlytowarrantseriousnotice，wereitnotadvancedbyawritersointelligent，and，onsome

pointsofthesubject，sowellinformed。Hasheoverlookedthecircumstance，ordoesheconsideritoflittleconsequence，thattheremust，bythesupposition，beaconditionofrepayment？Hegoeson，however，tosay：——"Thedemandforissuesofmoney"（loansofcapital？），"orthemeansofprocuringcapital，would，insuchcases，belimited

merelybytheamountofavailablesecuritytobeproduced，andtheeffectwouldbe，theriseinpriceofallthosecommoditieswhichcaninanywaybeturnedtoaccountsoastoproduceprofit。"Thereseemstobeastrangemisapprehensioninvolvedinthismodeofaccountingfortheeffecthereascribedtothelowrate

ofinterest。Wemustsupposethatthisreducedrateisgeneral，butthatgoodsecurityisrequired;because，ifcreditisgiven

indiscriminately，withoutreasonablesecurityforrepayment，thereisnorecklessnessofadventurethatwouldnotbeentered

into。Suppose，then，thatthereducedrateisgeneral，andtheloansforsuchlengthoftimeastoadmitofbeingextensively

acteduponbythedifferentdealersincommodities。Theeffectwouldbepreciselythereverseofthatwhichtheauthorwouldanticipate。Ageneralreductionintherateofinterestisequivalenttoorratherconstitutesadiminutionofthecostofproduction。Thisis

moreespeciallyandveryobviouslyanecessaryeffectwheremuchfixedcapitalisemployed，asinthecaseofmanufactures，

butitlikewiseoperatesinallcaseswhereanoutlayofcapitalisrequired，accordingtothelengthoftimeordinarilyoccupied

inbringingthecommodities，whetherrawproduceorfinishedgoods，tomarket;thediminishedcostofproductionhence

arisingwould，bythecompetitionoftheproducers，inevitablycauseafallofpricesofallthearticlesintothecostofwhich

theinterestofmoneyenteredasaningredient。Andthepresumptionaccordinglyis，thattheveryreducedrateofinterest

whichhasprevailedwithinthelasttwoyearsmusthaveoperatedasoneofthecontributingcausesofthegreatreductionofpricesofsomeofourmostimportantmanufactureswhichhasoccurredcoincidentlywithreductionintherateofinterest。Itisprobable，however，thatMr。Bosanquet，inhistheoryofhighpricesasaconsequenceofalowrateofinterest，maybe

undertheinfluenceofthesameopinion，asthatofMr。Gilbartandmanyothersthatafacilityofborrowingatalowrateof

interestnotonlyconfersthepowerofpurchasing，butaffordstheinducementappliesthestimulustospeculationin

commodities。Ifbyfacilityofborrowinghemeantalaxityofregardtosecurityforrepaymentonthepartofthelender，there

iseveryprobabilitythatmoneysoborrowedwillbehazardously，ifnotrecklesslyemployed;andwhetherinthepurchaseof

shares，orofforeignsecurities，orofmerchandize，orinanyothermodeofadventureorenterprise，orinmerepersonal

expenditure，isamatterofchance，dependingonthedispositionandviewsoftheborrower;suchborrowersarenotstimulatedtopurchasecommoditiesspeculatively，merelybecausetheycanborrowonlowterms;theyarebuttoohappyif

theycanborrowatall。Buttosupposethatpersonsentitledtocreditarelikelytobeinducedstimulatedisthefavourite

termbythemerecircumstanceofalowrateofinteresttoenterintospeculationsincommodities（usingtheterm

speculationinitsobnoxioussense），arguesawantofknowledgeofthemotiveswhichleadtosuchspeculations。Theseare

seldomifeverenteredintowithborrowedcapital，exceptwithaviewtosogreatanadvanceofprice，andtoberealized

withinsomoderateaspaceoftime，astorendertherateofinterestordiscountamatterofcomparativelytriflingconsideration。Intruth，theimportanceattachedtospeculationsincommodities，whetherasconnectedwithbanknotes，orwiththerateof

interest，orwithexpansionsandcontractionsoftheCurrency，inwhateversensethesetermsareused，isgreatlyexaggerated。

AslongasvicissitudesoftheseasonsareamongtheordinancesofProvidence，andaslongaspoliticalandfiscal

obstructionstothefreedomofcommercialintercourseareamongtheerrorsoflegislation，aggravatingallothercausesof

fluctuation，andamongthesethesliding—scaleofourCornLawsinapre—eminentdegree，therewill，inanystateofthe

Currency，bespeculation，which，initsobnoxioussense，impliesanexaggeratedviewofadeficiencyofsupply，andoftheprobableeffectofitonprices。NotonlyintheviewwhichMr。Bosanquettakesoftheeffectofvariationsintherateofinterestonprices，butinthe

influencewhichheascribestothosevariationsonthestateoftradeandofcredit，Idifferfromhimmostwidely。Agreeing

withhimasIdoinhisargumentagainstsomeoftheprominentassumptionsinvolvedinthecurrencytheory，nothing，inmy

opinion，canexceedtheinconsistencyofreasoning，andtheunfoundedsuppositionoffacts，uponwhichhegroundshis

belief（p。108），thatintheattemptsonthepartoftheBanktorectifytheexchanges，avariationissometimeseffectedin

pricesoffrom25to50percent。He，inthisinstance，takesforgospeltheassertioninthereportoftheManchesterChamber

ofCommerce，publishedatthecloseof1839，thattherevulsionofcreditandofpricesin1837hadentailedadiminutionin

thevalueofcommoditiestothatextent。Andwiththeframersofthereportheascribesthatrevulsionofcreditandfallof

pricestothemeasuresoftheBankofEngland，indiscountenancingthepaperoftheAmericanhouses，andinraisingtherateofdiscount。Astotherevulsionofcredit，itwasanecessaryeffectofthepreviousundueandextravagantex—tensionofit。ButwhatI

havetoremarkuponistheassumptionthattheraisingoftheBankrateofdiscount，in1836，to4？percent，andultimately

to5percent，hadaconsiderableinfluenceindepressingprices。NowifthisadvanceintheBankrateofdiscountweretobe

consideredasthemaincause，orevenamateriallycontributingcause，ofthefallinthepricesofcommoditiesatthattime，

howwasitthatanadvanceintherateofdiscountbytheBankofEnglandin1839to6percenthadnotanysuchdepressing

effect？Therewasagreatfeelingofuneasiness，andevenofalarm，throughthesummerandautumnof1839，andyetnotthe

slightestde—pressingeffectfromthesecombinedcircumstanceswasfeltinthepricesofproduce。Circularsofbrokersand

merchantsareusuallypublishedatthecloseofthepastandthecommencementofthecomingyear;andinsomeofthoseof

the1stofJanuary，1840，itwasstatedasamatterofwonder，thatthoughthevalueofmoney（meaningtherateofinterest）hadadvanced50percent，thatis，from4to6percent，themarketsforproducehadbeensowellmaintained。（24）Therewas，moreover，duringthewholeperiodofpressureonthemoneymarket（bywhichismeantanadvancedand

unusuallyhighrateofinterest），aremarkableabsenceofcommercialfailuresofanymagnitude;whereastheprogressivefall

intherateofinterestfromthecommencementof1840tothecloseof1842，whenitreacheditslowestpoint，was

accompaniedbyamarkedfallinmostoftheleadingarticlesofconsumption（thegreatestdepressionofpricescoinciding

withthelowestrateofinterest，viz。1？percent），andbynumerousfailures，amongwhichweremercantileandbanking

firmsofconsiderableimportance。Afallintherateofinterestbetween1818andthecloseof1822，wasaccompaniedbya

stillgreaterfallinthepricesofcommodities;andinstanceswithoutendcouldbemultipliedtothesameeffect。Itisnoteasy，

indeed，toimagineevidenceoffactsmoredecisive，thanthosewhichcanbeadducedofthenegativeofthedirectinfluence

ascribedtoalowrateofinterestinraisingthepricesofcommodities，andviceversa。Thetheoryisnotonlynottrue，butthereverseofthetruth。Theriseofpricesin1835—6wasmainlytheconsequenceofanextraordinarydemand，arisingfromaspiritofspeculation

whichhaditsorigininAmerica，andtowhichaninfatuatedconfidenceofthehouseshereinthattrade，ministeredby

unboundedcredits。Acollapseofcredit，astheultimateresultofsuchapreviousinflationofit，issoobviouslyaninevitablenecessity，astosupersedeanycallforexplanation。But，intruth，boththecurrencytheory，andthemoneymarkettheory，thatis，ontheonehand，thetheorywhichconnectspriceswithbanknotes，and，ontheotherhand，thetheorywhichconnectsthemwiththerateofinterest，areequallyinerror。Thephenomenaofthegreatfluctuationsofpriceswhichtheyattempt，inthefaceofallfactsandofallcorrectreasoning，to

accountforbythesupposedin—fluenceofbanknotes，oroftherateofinterest，arethoseofcredit，tooeasilyand

extensivelygiveninthefirstinstance，andwithdrawnofnecessityintheendwithmoreorlessviolence，accordingtothe

previousgreaterorlessundueextension。Thealternationsofexcessiveextensionofcreditundertheinfluenceof

exaggeratedopinion，withthesubsequentmoreorlessviolentcontraction，are，bytheconvenientambiguityandlaxityofthe

phraseologywhichisinuseindiscussionsonthissubject，more，perhaps，thanonanyother，termedexpansionsandcontractionsofthecurrencyorofthecirculation。Nothing，indeed，canbemoreconvenientinargumentthanthisambiguousphraseologyasaground，whetherofattackor

defenceofthemanagementoftheBankofEngland，orofthecountrybanks，orofthepresentsystemofbankinggenerally

（withaviewtothesubstitutionofsomeothersystem），inordertoprove，accordingtothesenseinwhichthetermcurrency

isused，thatthemismanagementofoneorotheroftheseisthecauseofallthemischiefofwhichthepublicthinksitselfentitledtocomplain。Thereisonefurtherremarkbeforedismissingthequestionoftheconnectionofthecurrencywithpriceswhichitoccursto

metomake，andthatis，thatwiththesamelaxityoflanguageasisobservableinalldiscussionsonthistopic，thetermprices

isoftenappliedindiscriminatelytocommoditiesandtosecurities。Nowitmustbequiteobvious，thatthesetwodescriptions

ofobjectsofpurchaseareacteduponbyalowrateofinterestinanexactlyoppositedirection。Alowrateofinterestis

almostsynonymouswithahighpriceofsecurities;while，asIhaveshown，itsnecessarytendencyistoreducethepricesof

commoditiesbydiminishingthecostofproduction。Andinpointoffact，thephenomenaofthelastthreeyearshave

exhibitedariseinthepricesofthepublicfunds，andofsharesandofsecuritiesgenerally，andafallinthemarketsfor

commodities。

CHAP。XIV。

DISTINCTIONBETWEENISSUINGANDNON—ISSUINGBANKS。Wehavethusseen，thatneithertheamountofthecirculation（banknotes）northerateofinterestordiscount，totheextent

towhichithashithertovaried，canbeconsideredasexercisingadirectin—fluenceonthepricesofcommodities，butthatthe

greaterpart，ifnotthewholeofthefluctuationsofpriceswhichareoverandabovethosethatarenecessarilyincidentalto

thenatureofthecommodities，areattributabletotheexpansionandcontractionofcredit，undertheinfluenceoftheopinionofdealersorspeculators，moreorlessexaggerated，oftheprospectofmarkets。Credit，initsmostsimpleexpression，istheconfidencewhich，wellorill—founded，leadsapersontoentrustanotherwitha

certainamountofcapital，inmoney，oringoodscomputedatavalueinmoneyagreedupon，andineachcasepayableatthe

expirationofafixedterm。Inthecasewherethecapitalislentinmoney，thatis，whetherinbanknotes，orinacashcredit，or

inanorderuponacorrespondent，anadditionfortheuseofthecapitalofsomuchuponevery100l。ismadetotheamount

toberepaid。Inthecaseofgoodsthevalueofwhichisagreedintermsofmoney，constitutingasale，thesumstipulatedto

berepaidincludesaconsiderationfortheuseofthecapitalandfortherisk，tilltheexpirationoftheperiodfixedfor

payment。Writtenobligationsofpaymentatfixeddatesmostlyaccompanythesecredits，andtheobligationsorpromissory

notesafterdatebeingtransferable，formthemeansbywhichthelenders，iftheyhaveoccasionfortheuseoftheircapital，in

theshapewhetherofmoneyorgoods，beforetheexpirationofthe。termofthebillstheyhold，aremostlyenabledtoborrow

ortobuyonlowerterms，byhavingtheirowncreditstrengthenedbythenamesonthebillsinadditiontotheirown。Agreat

proportionofthevasttransactionsofthecountryamongwholesaledealersarecarriedonbycredit，simpleanddirectforthemostpartinitsorigin，howeverramifiedandcomplicatedinsomeofitssubsequentprocesses。Itisquiteclearthatcreditasbetweendealersanddealers（includinginthisterm，merchants，manufacturers，andfarmers），

howeverliabletooccasionalabuse，doesnotadmitofbeingregulatedbyanylegislativeinterference。Butitischarged

againstourbankingsystem，onitspresentfooting，thatitis，ifnotanoriginating，averypowerfullyaggravatingcauseofthe

violentvariationsofcredittowhichthecommerceofthecountryisoccasionallyexposed。Andtosomeextentthecharge

mustbeadmitted。Thereisnodoubtthatbanks，whetherprivateorjointstock，may，ifimprudentlyconducted，ministertoan

undueextensionofcreditforthepurposeofspeculations，whetherincommodities，orinover—tradinginexportsorimports，

orinbuildingorinminingoperations，andthattheyhavesoministerednotunfrequently，andinsomecasestoanextent

ruinoustothemselves，andwithoutultimatebenefittothepartiestowhoseviewstheirresourcesweremadesubservient，isunfortunatelybuttootrue。Accordingtothegeneralopinionfoundedontheprevalenceofthetheoryofthecurrencyprinciple，itistobanksofissue

mainly，ifnotexclusively，thatthechargeherestatedismadetoapply。AndtheHouseofCommonsappearstohavebeen

underafullpersuasiontothiseffect，whenitappointedaCommitteeofInquiryintothesubjectofbanking，havingnamed

foritsobjectBanksofIssue。ThequestionwhichInowthereforeproposetoexamine，istowhatextentthisopinionmaybeconsideredtobewellfounded。Itis，Iconceive，impossible，uponaviewoftheevidencebeforethecommitteein1841，onthepartofthecountrybanks，of

whichIhavegivenextracts，toresisttheforceoftheconclusionthattheamountofnoteswhichcancirculateinagiven

districtisstrictlydeterminedandlimitedbythewantsoftheneighbourhood，sothatitisnotinthepowerofanyoneor

moreofthebanks，orofallofthemtogether，toaddtothetotalamountofnotesinthehandsofthepublicwithinthat

district;nor，unlessbysubstitutingBankofEnglandnotesorcoin，directly（25）todiminishtheamountoflocalnotes。Ifthisbe

true，andthatitissorests，asitseemstome，uponfactsandreasoningsoclearasnottoleaveroomfortheshadowofa

doubt，whatbecomesofthedistinctionsetupbythecurrencytheory，betweenissuingandnon—issuingbanksinthepoweroftheformerascomparedwiththelatter，toinfluenceanddisturbtheamountofthecirculation？ThefollowingpassagesinMr。Norman’slettertoMr。C。Woodpresentanelaborateviewofthesup—poseddifferenceofthe

inducementandpowerofbanksinapurelymetalliccirculation（beingthesameasnon—issuingbanks）tomakeadvances，and

therebyinfluenceprices，ascomparedwithbanksthathavethepowerofcreating，asitistermed，papermoneyinaidoftheirotherbusiness。"Itisplainthatitwouldneverbetheinterestofanybodytoissuemetallicmoneyinexcess，becausethecoincannever

exchangeforagreateramountofcommoditiesthanthemetalofwhichitisformedhascost，plustheseignorage，ifa

seignoragebetaken，ityieldstherefore，inordinarycircumstances，noprofit。Withbanknotesthecaseiswidelydifferent;

theyyieldaveryconsiderableprofit，anditistheinterestoftheirissuerstokeepincirculationaslargeanamountas

possible。Henceonesourceofthedangerofanover—issue。Anotherisfoundinthebodiesfromwhichtheyemanate。Inthis

countrythebanksofEnglandandIreland，jointstockandprivatebanks，arenotmerelycreators，butalsobankersinthe

propersenseoftheterm，dealersinmoney，andinthiscapacitytheyareexposedtoastrongtemptationtoavailthemselves

oftheirprivilegeasissuersinaidoftheotherbranchoftheirbusiness。Whenthepricesofgoodsrise，orwhenthereisa

struggleinprogressagainstanimpendingfallofprices，thecustomersofabankerusuallycalluponhimforincreased

assistancewhichitisdifficultforhimtorefuse，whileifatthesametimeinterestrisestheprospectofenlarginghisprofitis

anadditionalinducementforhimtoenlargehisadvances，andtoaidhisbankingresourcesbyanaugmentationofhis

circulation。Nowariseinpricesfrequentlyprecedesanun——favourablestateoftheexchanges，andastruggleagainstafall

ofpricesandanadvanceintherateofinterest，areitsordinaryconcomitants。Thusweseethatthefirststagesofanexport

oftreasurearegenerallycharacterisedbycircumstanceswhichtendtocauseanaugmentationofbanknotes，whilewitha

metalliccurrencytheywouldnecessarilybeaccompaniedbyareductioninthecirculation，asinthatcaseallthecoin

exportedwouldbetakenfromit。Itappears，then，thatwithamixedcurrency，likethatwhichexistsinthiscountry，the

tendencyofthingswhentheexchangesareunfavourable，isexactlycontrarytowhatwouldoccurhadweonlycoin。During

afavourableexchangeitisequallyso。Further，withametalliccurrencythegoldimportedwouldbeaddedtothe

circulation，whileatpresentinsuchastateofthingspricesfall，andtherateofinterestbeingusuallylow，loansare

redeemed，advancesarepaidoff，andthepapercirculationisthuskeptdown。Theexperienceofthelastfewyearsfurnishesusabundanceoffactsconfirmatoryofthistheoreticviewofthesubject。"（26）Thepassagesinthisextractmarkedwithitalicsappeartometoinvolveambiguityofmeaninginthetermsandfallacyinthe

reasoning。Thepropositioninvolvedintheveryfirstsentenceisuntenable。Itundoubtedlymightbeoccasionallytheinterest，

realorfancied，ofbankersdealingonlyinmetallicmoney，toissueitinexcess。Supposingallthedepositsreceivedbya

bankertobeincoin，mightitnotbehisbusinessthen，asnow，inconsiderationofhiscareandtroubleinkeepingthecash

andansweringthedepositors’drafts，toemploysomuchofthedepositsasbyexperiencehecomputesmaynotbe

immediatelywantedbythedepositors，inloansanddiscounts。Howthencanitbesaidthattheissueofmetallicmoneyin

ordinarycircumstancesyieldsnoprofit？Andcanitwithtruthbemaintainedthathecannotissueitinexcess？Ishenot，just

asmuchastheissuingbanker，exposedtotheimportunityofcustomers，whomitmaybeimpolitictorefuse，forloansor

discounts，ortobetemptedbyahighinterest？andmayhenotbeinducedtoencroachsomuchuponhisdeposits，asto

leavehim，undernotimprobablecircumstances，unabletomeetthedemandsofhisdepositors？Wouldnotthisbeissuing

metallicmoneyinexcess？Inwhatrespect，indeed，wouldthecaseofabankerinaperfectlymetalliccirculationdifferfrom

thatofaLondonbankeratthepresentday？Heisnotacreatorofmoney，hecannotavailhimselfofhisprivilegeasanissuerinaidofhisotherbusiness，andyettherehavebeenlamentableinstancesofLondonbankersissuingmoneyinexcess。But，saysthetheory，itistheinterestofissuersofnotestokeepincirculationaslargeanamountaspossible;granted：but

havetheythepoweraswellastheinclinationtoaddtotheamountoftheirnotesinthehandsofthepublicatanygiven

time，andthus"toaidtheirbankingresourcesbyanaugmentationoftheircirculation？"Thesuppositionoftheirhavingthe

power，implies，asIhavebeforeobserved，alurkingimpressionofsimilarityintheissuebetweenaconvertibleandan

inconvertiblepaper。Theissuerofinconvertiblepaperhasthepoweruptothelimitofutterworthlessness;whilethereare，as

hasbeenincontrovertiblyshewn，narrowandimpassablelimits，totallyindependentoftheforeignexchanges，tothepowerof

issueofastrictlyconvertiblepaper。Admitting，althoughwithqualification，asmattersoffact"thatariseinpricesfrequently

precedesanunfavourablestateoftheexchanges，andthatastruggleagainstafallofpricesandanadvanceintherateof

interestareitsordinaryconcomitants，andthatthefirststagesofanexportoftreasurearegenerallycharacterisedby

circumstanceswhichtendtocauseanaug—mentationofbanknotes。"Iamnotonlynotpreparedtoadmit"thatwitha

metalliccurrencytheywouldnecessarilybeaccompaniedbyareductioninthecirculation，asinthatcaseallthecoin

exportedwouldbetakenfromit;"butIhavenohesitationinstatingitasmyopinion，thatintheearlystagesofariseof

prices，andforalimitedtimetherewould，withametalliccurrency，beanincreaseinthecirculationofcoinnotwithstanding

anincipientexportofbullion;（27）suchexportofbullionnotbeingnecessarilyorprobably"somuchcointakenfromit;"nor

duringafavourableexchange"withametalliccurrencywouldthegoldimportedbeaddedtothecirculation"anymorethan

itisnow。AndIutterlydenythat"theexperienceofthelastfewyearsfurnishesabundanceoffactsconfirmatoryofthe

theoreticviewofthesubjectassetforthintheforegoingextracts。"Iadmitsomeofthefacts，butnopartofthehypotheticalcontrast，uponwhichthetheoryisfounded。IncorroborationofmyviewsonthispointIavailmyselfoftheauthorityofaveryaccomplishedwriter，whouniteswiththe

practicalexperienceofabankerararepowerofphilosophicalandscientificexposition：ImeantheauthorofanEssayon

Value，OntheFormationofOpinions，&c。Inatractentitled"ADefenceofJointStockBanksandCountryIssues，"heobserves，p。85。"Ifthecountrybankshaveerredatall，ithasnotbeenintheirconductasbanksofissue，butintheirconductasbanksfor

discountsandloans;amatteraltogetherdifferentanddistinct，withwhichthelegislaturehasnomoretodothanwithrashspeculationsincornorcotton，orimprovidentshipmentstoChinaorAustralia。"Thesetwothingsareoftenconfounded，andmanyoftheevilswhichhavebeenattributedtomismanagementofthe

circulation，toimproperandexcessiveexpansionsandcontractions，haveinrealityproceededfromimproperdiscountsand

loans，transactionswhichwouldtakeplaceunderanysystemwhatever，andtheevilsofwhichcanberemediedonlybya

progressinintelligence。Onthisdistinction，indeed，beingproperlyunderstoodandkeptinview，willdepend，inagreat

measure，thewisdomofanydecisionwhichmaybecometorelativetothegreatquestionofasingleBank，oramultiplicityofBanksofissue。"Noonewouldbemadenoughtoattempttointerfereinanywaywiththemanagementofestablishmentsforborrowingand

lendingmoney，andyetitisnottoomuchtosay，thatinthatcharacterbanksareoffargreaterimportancetothecommunity

thantheother;thattheyproducefarmoreextensiveconsequencesbytheregulationoftheirloansthantheycanproduceby

anyfluctuationswhichtheyhavethepowerofeffectingasbanksofissue，solongastheirpaperisconvertible。Whatever

arrangementsconsequentlyareadoptedinregardtothecurrency，theprincipalsourcesofgoodandevilinthesystemofbankingwillcontinue。"Supposingcountryissuestobesuppressed，andnopaperbutthatofonesingleissuertobeallowed，thebankswouldstill

beatlibertytomakeanyloanstheymightthinkproper。Alltheeffects，whethergoodorbad，producedonthecommerceof

thecountrybybankinginstitutionswouldremain，exceptthosewhicharespecificallyoccasionedbylocalpaper。Banks

properlyconductedwouldthenbeofthehighestservicetocommerceastheyarenow，whilebanksimproperlyconducted，

makingimmoderateandunwarrantableadvancesforimprovidentundertakings，andriskingtheirmoneyonhazardousor

worthlesssecurities，wouldbringgreatevilsbothonthemselvesandonthecommunity，justlikeanyothermercantileestablishmentsinthehandsofbadmanagers。"Itisnecessary，therefore，inordertoarriveatsoundconclusionsonthequestionsbeforeus，nottomixupthebenefitsandevilsofthetradeofborrowingandlendingcapital，withthespecificeffectsofissuingpromissorynotes。"Ifwewouldformaproperjudgmentofthecompetencyofanybanksofissuewhatever，toperformtheirfunctions，we

mustendeavourtoattaindefiniteviewsofthepeculiarad—vantagesanddisadvantagesofthatsortofcurrencywhichtheycirculate。"Whatthenarethespecificeffectsofapapercurrency？Whataretheresultingadvantagesanddisadvantagestothe

community，andwhataretheinstitutionsbestadaptedtosecureandproperlydistributetheone，andtoavoidtheother？

"Afewbriefhintsinanswertothesequestionsareallthatcanbehereofferedtothereader。"Everyonemustseeonreflectionthattherearetwoad—vantagesresultingfromwhatmaybetermedacredit—notecurrencysuchasourstheconveniencearisingfromitsformandthesavingofcapital。"Theformeradvantagewouldbeaseffectuallyattainedifeverynoteweretherepresentativeofanactualquantityofgoldin

deposit;or，inotherwords，ifnoteswerenotissuedtoagreateramountthanthecoinorbullionlodgedinthebankwhichissuedthem。Forthesakeofdistinctnessinthepresentdiscussion，letthesebecalledbullion—notes。"Thelatteradvantage，viz，thesavingofcapital，dependsonnotesbeingissuedtoagreateramountthanthebullionheldindeposit，anditisimportanttoremarkthatitisthesolepeculiaradvantagenecessarilyattendingsuchacurrency。"Andyetseeingsoclearlyashedoesthisdistinctionbetweenthebusinessofloansanddiscountsandthatofissueinthecase

ofthecountrybankers，lieseemstolosesightofthedistinctionwhenhereferstotheeffectsofthemanagementoftheBank

ofEngland。Hesays，p。62，whencomparingthecharacterandpositionoftheBankofEnglandwithcountrybanks，"The

former，inordertoputoutanadditionalamountofpaper，hasmerelytopurchasesecuritiestothatamount，whilethelatter

havenodirectmeanswhat—everofeffectinganexpansion。"NowIhaveshown，asItrustsatisfactorily，thattheBankofEnglandhasnomoredirectpowerinthisrespectthanthecountrybanks。TheonlyplausibleargumentthatIhavemetwithforadistinctionbetweenissuingandnon—issuingbanks，intheirtendency

toissuemoneyinexcess（meaning，iftranslatedintocorrectlanguage，"tomakeadvancesofcapitalinexcess"），is，thatin

thecompetition，eitherofnewBanksofIssue，togetaportionoftheexistingcirculation，orofestablishedbankstogetan

increasedshareattheexpenseofneighbouringbanks，theyareinduced，withaviewofgettingouttheirnotes，tomake

advancestoanundueextentanduponinsufficientsecurities。This，Ithink，maybeadmittedastruetosomeextent;andto

thisextenttheremaybesufficientgroundformakingwhateverregulationsshouldbethoughtadvisabletoguardagainst

malversationofbanksgenerally，morestringentasagainstBanksofIssue。Butthedistinction，totheextentwhichIhavehereadmitted，doesnotaffectthequestionofthecurrencyprinciple。Accordingtothatprinciple，BanksofIssuehavethepowerofissuingpapermoneyadlibitumuptothecheckof

convertibility，ingivingaccommodationtotheircustomers，beyondtheordinaryresourcesoftheirbankingbusiness。Now，

sofarfromthisbeingthecase，namely，thatthepowerofissuehascomeinaidoftheirresources，thetruthis，thatinallthe

flagrantcasesofmismanagementofbanks，theresourcesofthebusiness，thatis，thedepositsandthecapitalofthe

shareholdersorpartners，havebeenbroughtinaidoftheeffortstogetashareoftheexistingcirculation，nottoaddtoit，for

thatwasimpossible。Butitisdoubtful，tosaytheleastofit，whether，inpointoffact，themorestrikinginstancesof

excessiveadvanceswereinanydegreeowingtotheirbeingthemeansofgettingintocirculationanadditionalamountofnotes。###第4章InthecaseoftheNorthernandCentralBank，whichwasastrikinginstanceofarecklesslymanagedestablishment，their

liabilitiesweresaidtoexceed1，600，000l。，whiletheircirculationwassomewhatunder300，000l。Nowthepresumptionis，

thatal—thoughtheiradvanceswerebeyondalldoubtingreatexcess，theirissues，meaningtheirnoteswhichremainedout，

werenotexcessive;thatis，didnotexceedthenecessitiesofthecirculation;or，inotherwords，theamountthatwouldhave

beenincirculation，if，forinstance，BankofEnglandnotesonlyhadcirculatedthere。Astronggroundforpresumptionto

thiseffectis，thatthewholeamountofthenotesoftheNorthernandCentralBank，whenwithdrawnbytheirdiscredit，

appeartohavebeenreplacedbyanequalamountofBankofEnglandnotes。Itwasonthe1stofDecember，1836，thatthe

BankofEnglandcametoadeterminationtoassisttheNorthernandCentralBank，andapartofthearrangementwasto

takeupthecirculationofthelatter。NowthecirculationoftheBankofEnglandstoodthus：

29thNov。18363dJan。1837。

London？3，556，000？3，023，000

Country3，733，0004，074，000？7，289，000？7，097，000AndIwouldaskwhetherpresumptiveproofcanbestrongerthanthatthisexcessofthecountryissuesoftheBankof

England，attheprecisetimeofitsinterventionfortheNorthernandCentralBank，wasanecessarysubstituteforthewithdrawnnotesofthelatter？Thereis，moreover，thisimportantconsiderationarisingoutoftheviewherepresented，andthatis，thatwhereasthe

propoundersofthecurrencytheoryhavestateditasananomalyoftheexistingsystem，thatthecountrycirculationhas

occasionallybeenextended（andthishasbeenparticularlyremarkedbytheminregardtotheverytimeherementioned）

whentheBankofEnglandhascontracteditscirculation，andsofarcounteractedtheeffortsoftheBankofEnglandto

redresstheexchanges;herewasanincreaseofthecountryissuesoftheBankofEngland（notdistinguishedassuchintheGazettereturns）of340，000l。，whiletheLondoncirculationwasreducedbyupwardsof500，000l。！Itisnot，therefore，theissues（notes）oftheNorthernandCentralBankthatwereinexcess，buttheiradvancesthatwere

greatlyso。Andthis，Ihavenodoubt，wouldbefoundtobethecase，ifinquiredinto，ofeveryissuingbankthathasfailed。If

theissues（notes）ofaBank，howeversmalltheamount，provetobebeyondthepoweroftheissuerstopayondemand，they

arevirtuallyinexcessassoonas，onbeingtestedbythatcriterion，theyarefoundtofailintheperformanceofthecondition

onwhichtheywereissued，andwhichgavethemtheirvalue。Butaslongastheycontinueincredit，howeverundeserved，

andincirculation，undertheimpressionoftheirbeingstrictlyconvertible，theamountcannotbeexcessive。Thequalitymay，

unsuspectedbytheholders，bebad，whenthequantitymaynotbemorethansufficienttoanswerthepurposesofconvenienceforwhichalonethereisacallforanycirculationorcurrencywhatever。IntreatingofBanksofIssue，ascontradistinguishedfromnon—issuingBanks，itismaterialtobearinmindadistinction

betweenJoint—StockandPrivateBanksofIssue，whichis，thatinthecaseofJoint—StockBankstherehasnot，tothebestof

myrecollection，beenasingleinstanceofafailureofanyimportancewhichhasextendedtothenon—paymentofthenotesincirculation。Myimpressionis，thatinmost，ifnotinallinstances，thenotesofJoint—StockBanksinthehandsofthepublichavebeen

paidwithoutdelay，andatalleventsthattheyhavebeenultimatelydischarged。Delayorhesitationapplyingonlyinthefirst

instancetothedepositors，whilethelosshasultimatelyfallen，asitoughttodo，upontheshareholders。Intheinstancesof

privateissuingBanksthathavefailed，thecasehassofarbeendifferentthattheholdersofnotesandthedepositorshave

equallybeensufferers。ButalthoughthefailuresofprivateBanksofIssuehave（aswellasthoseofJoint—StockBanks）been

withinthelasttwoorthreeyearslamentablyfrequent，thecollectiveamountoftheirnotesinthehandsofthepublichas

beenveryinconsiderable，nottosayinsignificant。Soinconsiderable，asassuredlynotofitselftobeallowedtoweighinany

degreeworthmentioningamongthereasonsforthegreatchangewhichhasbeenproposedinthefootingofourpapercirculationbythepropoundersofthecurrencyprinciple，thatisofsupersedingallothersourcesbyasingleBankofIssue。IamreadytoadmitthatthefailureofaprivateissuingBankonthegroundsherestated，namely，thattheholdersofnotes

comeinonlyparipassuwithdepositors，isagreaterevilthanthefailureofnon—issuingBanks，orthanthefailureofissuingJoint—StockBanks。Butadmitting，asIdo，thatthisisanevilattendingprivateBanksofIssueascomparedwithnon—issuingBanks，orwith

issuingJoint—StockBanks，itisanevilofinfinitelylessimportancenowthanwhencountrybanknotesunder51。werein

circulationthroughouttheUnitedKingdom。TheyarenowconfinedtoScotlandandIreland。Thedifferenceisimmeasurably

greatasrelatestothesufferingorhardshipattendingthesuspensionofpaymentsofthenotesofalocalbank，betweennotes

of1l。andnotesof5l。andupwards。Wherethesmallernotes，thatis，of1l。，areissued，theycirculateamongtheworking

classesofthepopulation。Consequently，wheneverbanksissuing1l。notesfailed，thelossfellheavilyonthoseclassesamong

whomtheartisansandbetterclassofoperativesreceivedtheirwagesinthatform。ThatIhavenotbeenunmindfuloftheevil

attendingtheissueofthisdescriptionofnotes，asconnectedwiththeriskoffailureoftheissuingbanks，maybeseenbythefollowingextractfromaTractofmine，entitled，"ConsiderationsontheStateoftheCurrency，"publishedinJanuary，1826。"Whatevermaybedetermineduponastotheexpediencyofprovidingadditionalsecurityforthegeneralcirculationofthe

countrybanks，thereisonepartofthatcirculationwhichoughtnotuponanyfooting，orwithanymodification，tobeany

longertolerated。Imeanthenotesunder5l。Theseareineverypointofviewamostobjectionablemediumofexchange。

Leavingoutofthequestiontheconsiderationoffluctuationsinthevalueofthecurrency，someprotectionofthelower

classesagainsttheseverelossestowhichtheyhavesooftenbeenexposed，astheholdersofsmallnotes，whenthebanks

issuingthemhavefailed，isimperativelycalledfor。Itisquiteidletosaythatthelowerclasseshavetheoptionofrefusingto

takethecountrynotes，practicallyinthegreatmajorityofinstances，theyhavenotandcannothaveanysuchoption。Butif

thereisanyobjectmoreimportantthananother，forwhichthegovernmentofeverystatehasbeeninvestedwiththe

privilegeofcoiningmoney，itisthatofprotectingthelowerclassesofsociety，whoarelittlecompetentinthisparticularto

protectthemselves，fromtheriskoflossinreceivingtheirstipulatedwagesorotherpayments。Andthisfunctionofthe

sovereigntyofissuingcoin，which，underthestrongestsanctions，certifiestoeverymemberofthecommunitytheweightand

finenessofthemoney，whenhemaybeentitledtoreceiveit，justlyguardedagainsttheinterferenceofprivateindividualsby

theseverestpenalties。Butbyastrangeinconsistency，whilesuchcareismanifestedtosecurethecommunityfrombeing

imposeduponbymetallicmoneyoflessthanstandardvalue，everyadventurerwhochoosestofollowthetradeofabanker

isallowedtoissueaspuriouspapermoney，whichhavingneitherintrinsicvaluenoranyadequatesecurityforeventual

convertibility，isintoomanyinstancesneithermorenorlessthanafraud，afraudofwhichthemostnumerousandhelpless

classesandthosewhocanleastbearthelossaremostcommonlythevictims。"ConsiderationontheStateoftheCurrency，1826，p。127，128。Atthetimewhentheseremarkswerewritten，theamountofthecirculationofonepoundnotesinEnglandandWaleshad

beencomputedatupwardsoffivemillions。Theevil，therefore，ofthesuspensionofsomanyissuingbanksashadthen

recentlyfailedwasoneofgreatmagnitude，whichfullyjustified，orratherdemanded，theinterferenceofthegovernmentand

thelegislaturetoprovidearemedy，andthiswasmosteffectuallydonebythesuppressionofthatobjectionableclassof

notes。Atpresenttheentirecirculationofnotesof6l。andupwards，issuedbyprivatebanksinEnglandandWales，hardly

exceedsmamountwhatwasthecirculationof1l。notesalonepriorto1826。Andhowevertoberegrettedthattheholders

ofprivatecountrybanker’snotes，beingnowofthedenominationof5l。andupwards，shouldoccasionallybeexposedto

lossbyfailureoftheissuers，itwillhardlybecontendedthattheircaseissoimportantandsoclearlydistinctfromthecaseof

depositors，andothersufferersbythefailureofBanks，astojustify，withtheviewofprotectingthem，analterationofthewholesystemofissueintheKingdom。Butasitappearsthatwhatevertherelativemeritsmayinotherrespectsbe，asbetweenprivateandJoint—StockBanksof

Issue，thecirculationofthelatterismuchmoresecure，amodeofgraduallysubstitutingtheissuesofthemforthoseof

privateBankswiththeleastinconveniencetothepublic，andwithoutinjurytoexistinginterests，wouldbesimplythatofnot

grantinglicensesfortheissueofnotestoanyprivateBankswhicharenotalreadyinpossessionoftheprivilege。Thenotes

ofJoint—StockBanksandoftheBranchesoftheBankofEnglandwouldthusbydegreessupersedethoseoftheprivateBanks，andsoremoveonesourceofinconveniencefromthepresentsystem。Ihavenoticedatsomelengththispoint，namely，theinsecurityofthenotesofprivateBanks，becauseithasbeenbroughtin

asamakeweightamongtheargumentsinfavourofasingleBankofIssue。Onthegroundswhichhaveherebeenstated，Iholdittobeutterlyinsignificantinthatview。Ishallthereforeproceedtomakethefewfurtherremarkswhichoccurtomeonthecurrencyprinciple，initsapplicationto

ourBankingsystem，leavingoutofthequestion，orleavingasapointforseparatediscussionbythosewhodeemitof

sufficientimportance，theliabilitytoinsolvencyofprivateBanksofIssue。

CHAP。XV。

REVIEWOFTHECURRENCYPRINCIPLEINITSAPPLICATIONTOOURBANKINGSYSTEM。Iftheviewswhichhavethusfarbeenunfoldedareadmittedtobecorrect，itcanhardlyfailofbeingseenasafairdeduction

fromthem，thatthewholeofthegroundonwhichthetheoryoftheCurrencyprincipleproceedsisunsound。Theerrorof

supposingthat，ifthecurrencywerepurelymetallic，everyexportorlin—portofbullionwouldbesomuchtakenfromor

addedtothequantityofmoneyincirculation，issoobvious，sopalpable，astomakeitamatterofsurprisethatsuchanotion

shouldeverhavebeenentertained。Andmustitnot，asaninevitableconsequence，followthatitisequallyanerrorto

supposethatthepapermoney，ifadministereduponthefootingproposedbythecurrencydoctrine，ofasinglesourceof

issue，havingafixedamountonsecurities，andbeyondthat，exchangingonlypaperagainstgold，andviceversa，wouldvary

inamountandvalueinthehandsofthepublic，withvariationsinthequantityofbullionexportedorimported，orinthequantityofbullioninthecoffersoftheBank？Iwouldnotmisrepresentthedoctrine;butin—stancesinnumerablemightbeadducedfromthewritings，andfromthe

examinationbytheCommitteeonBanksofIssue，oftheadvocatesofthatdoctrine，thatitgoestothefullextentherestated;

tabularstatementsbeingexhibitedofthediscrepanciesbetweenbullionintheBankandnotesoutofit，withaviewtoprove，

accordingtotheoccasion，sometimesagainstthecountrybanks，andsometimesagainsttheBankofEngland，thechargeof

mismanagement。Onesourceoftheirerroristheirimaginingthat，intheirsupposedBankofexclusiveIssue，thenotespaid

forgoldexportedmustnecessarilybetakenfromoutofthosecirculatingamongthepublic，andthatthegoldimported

wouldbetakentotheBankmexchangeforbanknotes，whichwouldgointothehandsofthepublic;andtheyholdittobe

theopprobriumofthepresentsystem，thatthisisnotnowthecase。Itmust，howeverbeclear，ifIhavemademyselfatall

intelligible，thatinneithercasewoulditnecessarilyorgenerallybethecase，orrather，itwouldberarelyso，underasingle

bankofissue;and，exceptunderextraordinarycircumstances，theamountofnotesinthehandsofthepublicwouldbenearly，ifnotquite，thesameunderonesystemasundertheother。Itmaybeasked，andthequestionisaverynaturaloneforthosewhoareimpressedwiththenotionthatbanknotesare

operativebytheiramount，andwhoarenotawareofthedistinctionbetweencurrencyandcapital，howitisthattheBankof

England，orthebankscollectively，iftheycannotcontractthecirculation，（asImaintainthattheycannotbyanydirect

operation，）noroperatethroughthatmediumonthepricesofcommodities，aretobesupposedtohavethepowerof

influencingtheexchanges？Theansweris，thatitisonlybyaforcibleactionontheirsecuritiesthattheycaninfluencethe

exchanges，soastoarrestadrain，ortoresistanexcessiveinflux。Byaforcibleactiononsecuritiesismeantagreatadvance

intherateofinterestontheonehand，oragreatreductionofitontheother。Andtherationaleofsuchoperationontherate

ofinterestis，thatitrendersdisposablecapitalintheonecasescarce，andintheotherabundant;forcingitfromforeign

countriesintheformer，andtotheminthelattercase。Theeffectofthepumpinginorforcingoutofbullionbythismeansis

infallible;andtheonlypracticalquestionisofthemoral，orcommercial，orpoliticalconsiderations，whichmayinterferewiththefullexertionofthepower。AforcibleoperationbytheBankonitssecurities，ineitherdirection，willnot，ofnecessity，asIhaveshown，beattended

withanimmediateordirecteffectonthepricesofcommodities。Theeffect，ifany，canbeonlyindirect，throughthemediumofcredit，anddependentonthepreviousstateofthemarket。Ihavebeforehadoccasiontonotice，inreferringtotheexaminationsofthecountrybankers，thecon—foundingofcurrency

withcapital，whichwasobservableinthequestionsputbysomeofthemembersoftheCommittee。Thatconfusion，being

traceabletothedeep—seatedimpressionwhichtheyseemtohavebeenunder，thattheamountofbanknotesinthehandsof

thepublicwasthemainpointforconsideration，ashavingadirectandanimportantinfluenceonprices，andoncredit，and

ontrade，insteadofbeingasitis，amereeffectorindicationofthecircum—stanceswhichcalloutandmaintainthat

amount。ThesameweddedattachmenttothedoctrineoftheCurrencyprinciplewhichlookstobanknotes，andtobank

notesonly，astheprimummobileinourmonetarysystem，mayaccountforthelittleresearchwhichtheCommitteemade

intothecausesandeffectsofvariationsintherateofinterest，andforthestrangemisconceptionwhichpervadedthe

questionsrelatingtothatpoint，ofthoseofitsmemberswhotookaleadingpartintheexaminations。Theyseemfromfirstto

lasttohavelookeduponvariationsintherateofinterestasofimportanceonly，inasmuchasthosevariationsmightbesupposedtoaffecttheamountofthecirculation。Inpointoffact，theliabilitytovariation，greaterorless，intherateofinterest，constitutesinthenextdegreeonlytothe

preservationoftheconvertibilityofthepaper，themostimportantconsiderationin。thequestionwhetherthepresentsystem，

withsomeamendment，shouldbecontinued，orsomeoneorotherofthenumerousschemesforagovernmentornational

bankshouldbesubstitutedforit。Mr。Bosanquet，inhispublication，towhichIhavealluded，entertainssuchexaggerated

viewsofthedisastrouseffectsonthecommerceofthecountry，ofaconsiderableadvanceintherateofinterest，whichhe

seemstoconsiderasanalterationofthevalueofthecurrency，thatinhisschemeforabankorbanksofissue，hewould

prescribeacompulsorymaximumandminimumoftherate，variablebetweensixandfourpercent，accordingtocertainrules

whichhelaysdownwithreferencetotheexchanges：andratherthanallowaforcibleoperationontherateofinterest，in

ordertostopadrainonthetreasureoftheBank，hewouldresortfirsttoatemporaryissueof1l。notes，andifthatshould

proveinsufficient，suspendtheconvertibilityofthepaper！Howanywell—informedperson，notoftheBirminghamschool，

couldseriouslyproposetohavecashpaymentssuspended，ratherthanthatthemercantilecommunityshouldbesubjectedto

someinconveniencefromanadvanceintherateofinterest，andwhathechoosestoconsiderasanecessaryconsequence，a

fallofprices，istomematterofunutterablesurprise。Itmayserveasaproofoftheexaggeratedviewsentertainedinsome

quartersoftheeffectsofaforcibleoperationontherateofinterest，anditformsacontrasttothelittleattentionpaidtothat

point，notonlybythecommitteeonBanksofIssue，butbythepropoundersofthevariousschemesforagovernmentornationalbank。Now，withoutattachingsuchexaggeratedimportanceasMr。BosanquetandMr。Gilbart，andsomeotherswhoopposethe

currencyprincipledo，totheeffectsofgreatvariationsintherateofinterest，Iaminclinedtothink，thatexceptingthe

convertibilityofthepaperandthesolvencyofbanks，whichareandoughttobewithintheprovinceofthelegislaturemost

carefullytopreserve，themaindifferencebetweenonesystemofbankingandanother，isthegreaterorlessliabilitytoabrupt

changesintherateofinterest，andinthestateofcommercialcreditincidentaltooneascomparedwiththeother;anda

carefulconsiderationofthevariousplanswhichhavebeensubmittedtothepublicforcarryingoutthecurrencyprinciple，

hasledtoaconfirmationoftheopinionwhichIhavebeforeexpressed，thatunderacompleteseparationofthefunctionsof

issueandbanking，thetransitionswouldbemoreabruptandviolentthanundertheexistingsystem;unless，anduponthis，in

myopinion，thequestionhinges，thedepositorbankingdepartmentwereboundtoholdamuchlargerreservethanseemstobecontemplatedbyanyoftheplanswhichIhaveseen。Thedifferencebetweenthetwosystemscannotbeplacedinamorestrikingpointofviewthaninthefollowingpassagesofa

printedletterwhichColonelTorrensaddressedtomeonoccasionoftheopinionswhichIhadexpressedonthesubjectinaformerwork。Thedifference，"ColonelTorrenssays，"betweenusisthis，youcontendthattheproposedseparationofthebusinessofthe

bankintotwodistinctdepartmentswouldcheckover—tradinginthedepartmentofissue，butwouldnotcheckover—trading

inthedepartmentofdeposit;whileImaintain，onthecontrary，thattheproposedseparationwouldcheckover—tradingin

bothdepartments。Themannerinwhichtheseparationwouldhavethistwo—foldeffectwillbeseenbythefollowingexample。"Letusassumethatthebankholds18，000，000l。ofsecuritiesand9，000000l。ofbullion，against18，000，000l。ofout—

standingnotesand9，000，000l。ofdeposits，andletanadverseexchangerequirethatthedepositorsshoulddrawouttheir

depositsinbulliontotheamountof3，000，000l。"Inthiscase，ifthebusinessofissueweremixedupwiththatofdeposit，the

drawingoutofthe3，000，000l。ofdepositsinbullionwouldhavenoothereffectthanthatofreducingbothdepositsand

bullionbytheamountof3，000，000l。，whiletheamountofthecirculationandofthesecurities，andthepowerofthebank，

asitssecuritiesfelldue，tocontinuethediscountbusinesstothesameextentasbefore，wouldsuffernodiminution。Butletthedepartmentofissuebewhollyseparatedfromthatofdeposit，andtheresultwouldbewidelydifferent。"Assoonastheseparationwaseffectedthedepositdepartmentholding9，000，0001。ofdepositswith9，000，000l。of

securitieswouldbeobligedtosellsomepartofitssecurities，sayone—third，inordertobepreparedtomeetthedemandsof

itsdepositors。ThestateofthetwodepartmentswouldthenstandthusCirculatingDepartment。

Circulationl8，000，000

Securities9，000，000

Bullion9，000，000

DepositDepartment。

Deposits？，000，000

Securities6，000，000

Reserveinbanknotes3，000，000"Thisbeingthepreviousstateofthings，thedemandofthedepositorsfor3，000，000l。，ingoldwouldproducethefollowing

changes。The3，000，000l。ofbanknotesheldbythedepositdepartmentasreservewouldbedrawnoutbythedepositors

andpaidintothecirculatingdepartmentinexchangeforgold，whilethedirectorsofthedepositdepartment，inorderto

recoverareserveequaltoone—thirdoftheirdepositswouldbeobligedtosell2，000，000l。outofthe6，000，000l。heldin

securities。Theresultswouldbe，thatinthecirculatingdepartmentthebullionwouldbereducedfrom9，000，000l。to

6，000，000l。，andthecirculationfrom18，000，000l。to15，000，000l。，andthatinthedepositdepartmentthedepositswould

bereducedfrom9，000，000l。to6，000，000l。，thesecuritiesfrom6，000，000l。，to4，000，000l。，andthereservefrom

3，000，000l。to2，000，000l。Itisself—evidentthattheeffectofthesechangeswouldbenotonlyacontractionofthecirculationbutalimitationtothepowertoover—tradeindiscountandloans。"Iamwillingtoadmitthisstatementasexhibitinginsubstancethedifferencebetweenus。Accordingtomyview，asthere

maybevariationsofinternationalpayments，inotherwords，ofabalanceoftrade，withoutanygroundsforinferenceof

alterationsinthevalueofthecurrenciesofthecountriesfromwhichortowhichsuchbalancemaybedue，thepresumption

is，thatanoccasionaleffluxoffourorfiveorsixmillionswouldbefollowedatnodistantperiodbyafullyequalreflux。Such

wasthecasein1828—29and1831—32，whenthetreasureoftheBankhavingbeenreducedbyfiveorsixmillionswas

replenishedwithouttheslightestoperationoftheBankontheamountofitssecurities，oritsrateofinterest。Andsuchefflux

andrefluxmightagaintakeplaceunderacontinuanceofthepresentsystem，providedthattheBankhabituallyheldalarge

reserve，withoutanydisturbanceofthemoney—market，andwithoutanyinfluenceontheamountofbanknotesinthehands

ofthepublic。Now，underasystemofseparation，andinthepositionofthetwodepartmentsinthecasesupposedby

ColonelTorrens，whatwouldbetheoperationofademandforexporttotheextentofthreemillionsofgold？Inallprobability，thisdemandwouldalmostexclusivelyfalluponthedepositdepartment。Thisbeingthecase，theDirectorswouldnothaveamomenttoloseuponthefirstmanifestationofsuchdemand，without

takingmeasuresforretainingorrestoringtheproportionoftheirreserve。Theymustsellsecurities，orallowtheexisting

ones，ifshort—dated，torunoff，andtheymustinexorablyshuttheirdoorstoallapplicationsforadvancesordiscounts。This

would，asColonelTorrensjustlyobserves，operateasalimitationofthepowertoover—tradeindiscountandloans。Most

effectual，indeed，woulditbe，andundercertaincircumstancesofthetrade，itwouldoperatewithadegreeofviolenceon

thestateofcreditofwhich，asitappearstome，ColonelTorrenshasnoadequateidea。Thisisnottobewonderedatina

writernotpracticallyconversantwithtradeorbanking;butthatotheradvocatesforthemeasureofseparation，whonumber

amongthemmerchantsandbankers，shouldbesounawareofitastheyseemtobe，doesindeedsurpriseme。Beforetwoor

threemillionsofbanknotescouldbeforciblyabstractedfromtheamountincirculationamongthepublic，thepressureupon

thereservesoftheLondonbankersmustbeextreme。Theywould，ofcourse，totheutmostextentpracticable，callintheirloans，andresolutelyrefusefurtheraccommodation。（28）Althoughthereisnomodernexperienceofsuchastateofthings，ifanymerchant，banker，ormoney—dealerweretohave

thecaselaiddistinctlybeforethem，couldanyofthemforamomenthaveadoubtastotheextremityofpressurewhichit

wouldcause？Iammostintimatelypersuadedthatitwouldbewithinthemarktosupposethatarateofdiscount（assuming

thatthedoorsoftheBankandtheearsoftheDirectorswereinexorablyclosedagainstallapplications）of20percentand

upwardswould，inmanycases，besubmittedto，andsacrificesofgoods，ifanylargeproportionwereheldoncredit，would

bemadeatastillgreaterloss。And，afterall，itmightbeaquestion，whethereventhiseffortoftheBankonitssecurities

wouldbeeffectualinrestoringitsreserveinsufficienttimetomeettheexigency。Thiswoulddependentirelyuponthe

characterofitsdeposits。Ifthesewerestrictlypayableondemand，whilethecircumstancesdeterminingtheeffluxwere

strongandurgent，thepaymentof3，000，000l。accompaniedbyforcedsalesofsecuritiesmightproveinsufficientinpointof

timetoarrestthedemand;andinthiscase，whilethecirculatingdepartmentwouldstillhave6，000，000l。ofbullion，the

depositdepartmentwouldhavenoalternativebuttostoppayment。Amostabsurd，howeverdisastrousastateofthings。But

itwouldbetoodisastrous，andtooabsurdtobeallowedtotakeitscourse。Ifsuchacrisisweretohappen，asmostprobably

itwouldatthetimewhenthedividendsonthepublicfundsbecamedue，theGovernmentwouldbeimperativelycalledupon

tointerfereandpreventsoridiculous，howeverlamentable，acatastrophe。Andtheonlyinterferencethatcouldmeettheemergencywouldbetoauthoriseatemporarytransferofcoinfromtheissuingtothebankingdepartment。Thetruthis，thatnobankofmeredepositcouldundertaketheGovernmentbusiness，involvinganannualreceiptand

expenditureof50，000，000l。，subjecttodeficiencyoftherevenueatonetime，andtooverflowatanother，withsosmalla

reserveas3，000，000l。，whateveritsotherbusinessmightbe;anditisdifficulttoconceivehowitcould，withouttheprofitof

thecirculation，affordthemuchlargeramountwhichwouldberequisite：Butthisisapointwhichitisforeigntomypurpose

todiscuss。WhatIhavetoobserveis，thatsupposingtheviolenteffortoftheBank，onitssecurities，tobeeffectual，there

cannotbeadoubtthattheviolenceoftheeffortwouldhavebeenattendedwithinconveniencetothepublic。Andallthis

inconveniencemayhavebeenpurelygratuitous，asasacrificetothecurrencyprinciple;becausetheutmostdemandforgold

mighthavebeensatisfiedbyanexportof3，000，000l。or4，000，000l。which，underasystemofunionofissuingandbanking，wouldhavebeenattended，asintheinstancesof1828—29，and1831—32，withnoinconveniencewhatever。Butitmaybeasked;andhereisthepoint;supposingthatthedemandforexportofbullionbesuchthatnotthreeorfour

millions，butnineortenmil—lionswillberequiredtosatisfyit。Whatthenbecomesofaplanofquiescence？Myansweris，

thatIwouldnotbeaccountableforaplanofquiescenceuponanamountoftreasureintheBanknotexceedingninemillions

attheoutsetofadrain。ItwasanerroroftheBankin1839，tohavebeenperfectlyquiescentuntilalossoftreasurefrom

9，336，000l。to5，119，000l。hadtakenplace。Andtheonlyeffortthenmadewasanadvanceoftherateofinterest，stepby

step，to6percent，andareductionofthedateofthebillsadmissiblefordiscountfromninetydaystosixtydays;thelimitationofdaysbeingofmuchmoreimportancethantheincreaseoftherate。Thiseffortwasaltogetherinadequate;adifferenceintherateofdiscountof2percentperannum，isatriflingconsideration

onbillshavingattheutmostsixtydaystorun;andaccordingly，theBankdidnotonlynotsucceedbythesemeasuresin

reducingitssecurities，but，aswasinevitableaslongasthedoorfordiscountswasleftopen，actuallyincreasedthem。Sothat

withadvancesondeficiencybills，thesecuritiesinsteadofbeingdiminished，wereactuallyincreasedbythreeorfourmillions

duringthegreatestpressureofthedrain。Still，withtheaidofthecreditsonParis，thedrainwassurmounted;andalthough

thislastresourcewasanythingbutcreditable，yet，inasmuchasthecrisiswasthusgotover，meritmaybeclaimedinbehalf

ofthesystemforhavingcomethroughwithlittle，ifany，sufferingorinconvenience，commercialorfinancial。Themarkets

forproducewereperfectlyundisturbed，therewerenomercantile，ormanufacturing，orbankingfailuresofanynote，and

therewasnogreatfallinthepricesofpublicsecurities;sothattheactualinconvenienceprovedtobeineffectvery

unimportant。Thisexemptionfromsufferingormaterialinconvenience，insurmountingthedrainwas，assomemaythink，

andIamongthem，dearlypurchased：butsoitwas。

Now，howwouldthecasehavestood，iftheseparationhadexistedin1839？TakingtheactualsituationoftheBankinJanuary，1839，andonthesuppositionofaseparationofthefunctions，allotting

twelvemillionsofsecurities（insteadofninemillions，anamountobviouslytoolow）tothecirculatingdepartment，thetwo

brancheswouldhavestoodasfollows：（29）CirculatingDepartment。

Securities。Bullion。

Notes，publicl8，20l，000

Bankingdepartment3，135，000

21，336，00012，000，0009，336，000

BankingDepartment。

SecuritiesBankNotesDeposits？0，315，000

Rest2，500，0009，680，0003，135，000Upontheoccurrenceofthedemandforgold（whichwouldnaturallybe，andwasinpointoffactmade，bydepositorsinthe

bankingdepartment），andwhichwastotheextentofalittlemorethanamillionbetweenJanuaryandMarch，itmaybe

taken。forgrantedthatthedirectorswouldseereasontosellortoallowtherunningoffofsecuritiestothesameextent，and

iftheyatthesametimeshuttheirdoorsagainstdiscountsandadvancesondeficiencybills，theirliabilitieswouldbereduced

tothesameextent。Thenoteswouldbetakenfromthebankingtothecirculatingdepartmentinexchangeforgold，andleave

theamountofthecirculationinthehandsofthepublicwithoutanyalteration。Andthisprocessmightbysuppositionhave

continuedtilltheremain—ingbanknotesweretransferredfromthebankingtotheissuingdepartment，withoutproducingtheslightesteffectontheamountofthecirculationinthehandsofthepublic。Aforciblereduction，however，ofthesecuritiestotheextentsupposed，woulddoubtlesshaveabatedtheforceofthedrain，

andmightpossiblyhaveovercomeit;butseeingthecombinationofcircumstanceswhichledtothatdrain，itmayfairlybe

doubtedwhethertheefforthereassumedwouldhavebeensufficienttoarrestit。Mystrongconvictionis，thatitwouldnot

havebeensufficient，ifevenithadbeenpracticable;butIdoubtwhetheritwouldhavebeenpracticable。Notwithstandingthe

endeavoursofthedirectors，whentheirattentionhadbeenfullyrousedtotheimportanceoftakingmeasuresofprecaution，

andnotwithstandingariseintherateofdiscountandalimitationofthedateofbillsadmissible，thesecuritiesnotonlywere

notreducedbythreemillions，asIhavesupposedtheywouldbeunderaseparation，butwereactuallyincreasedbythree

millions，partlybyadvancesondeficiencybills。Nowbetweenawithdrawalfromemploymentofdisposablecapitaltothe

extentofthreemillions，andanactualadvancetothesameamount，isadifferenceofsixmillions。Suchareduction，suddenly

effected，intheamountofavailablecapitalinthehandsofthepublic，couldnotfailtobeattendedwithveryimportantand

highlyinconvenienteffects。Thestateofcreditwouldnecessarilybederanged，aswouldbethemarketsintowhichcredit

enteredlargely。

Butgreatasmightbetheinconvenience，itoughttobesubmittedtoratherthanthattheBankshouldfailinitsengagements。WhatIwishtoimpressbythisviewis，thatbytheseparation，thebankingdepartmentwouldnothavetimetojudgeofthe

natureandprobableextentofthedrain，butmusttakeforciblemeasuresforself—preservationuponthefirstmanifestationof

it。Andwithonlysuchaproportionoftreasure，thatis，ofbanknotesandcoin，ashashithertobeensupposednecessaryto

allottoit，thechancesare，thatundersuchcircumstancesasoccurredin1839，（asalso，indeed，in1835and1836，）the

measurestobetakentoarrestadrain，howeverpromptandforcible，mightnotbeeffectualinsufficienttimetopreventa

sus—pensionofpaymentbythebankingdepartment;while，bythetimegainedunderasystemofunion，andtheaidtothe

treasureofthedepositdepartmentbygoldobtainedfromthecirculatingdepartment，thepressuremightbegreatlydiminished，andeventuallygotover，withoutanyinconveniencetothepublic。Butthenagaincomesthequestion，Whatisthesecuritythatthepressurewouldbeeventuallygotover，andtheconvertibilityofthepaperpreserved？IhaveonthispointonlytorefertotheopinionswhichIhaveonformeroccasionsexpressed，andwhichalltheadditional

lightsincethrownuponthesubjectbythemassofinformationcontainedintheReportsoftheCommitteesonBanksofIssue，andbythecurrencypamphlets，and，aboveall，byrecentexperience，hastendedtoconfirmandstrengthen。Inaworkpublishedinthespringof1838，（30）Itookoccasiontoobserve，"thatasfarastheeventfulexperienceofthelast

fourteenyears，viz，since1824，canserveasaguideforjudgment，thereappeartobegoodgroundsforbelievingthatnot

lessthan10，000，000l。caneverbeconsideredasasafepositionofthetreasureoftheBankofEngland，seeingthesudden

callstowhichitisliable。"Andtwoyearslater，inFebruary1840，Iventuredtosuggestthefollowingplanasthataccording

towhich，asitappearedtome，thecirculationmightbeconductedwiththegreatestconveniencetothepublic，andwiththe

leastdangertotheconvertibilityofthepaper"TheplanwhichIwouldproposeis，thatwhenthetideofthemetalssetsfullyinagain，theBankrateofdiscountshouldbe

keptsosteadilyabovethemarketrate，asprogressivelytoreducethesecuritiesthroughthatchannel，withoutincreasing

thembyotherinvestments。Theeffectofthiswouldbetoensureareplenishmentoftheircofferstotenmillions;andwiththe

purposeofendeavouringtopreservethatamountonanaverage，itwouldnotbeexpedientonthepartoftheBanktotake

anyactivemeasuresfortheincreaseofitssecurities。Itisnotimprobable，judgingbythestrengthandfulnessofthetidewith

whichthemetalshaveflowedinonsomeformeroccasions，thattheamountmightthusreachfifteenmillions，beyondwhich，

accordingtoanalogyfromformerexperience，itisnotlikelythatitwouldgo。Theprobabilityis，thatinthefluctuationsto

whichourtrade，particularlythatincorn，isliable，theexchangeswouldtakeanadverseturn;bullionwouldflowout，the

marketrateofinterestwouldrisetotheBankrate，andthenitwouldbethattheadvantageofthelargestockofbullion

wouldbefelt;becausetotheextentoffivemillionstheforeignexchangesorinternaldemandmightbeallowedtooperate

uponthestockofbullion，withoutthenecessityonthepartoftheBanktocounteractthatdemandbyanyactivemeasuresin

raisingitsrateofdiscountorsellingitspublicsecurities。Thequantityofmoneyinsuchcaseinactualcirculationwouldnot

bereduced，exceptinginasmallproportiononly，tothereductionoftheamountofbullion，becausethewithdrawalof

depositswould，underthealightpressureonthemoneymarketwhichwouldattendariseinthemarketrateofdiscountto

theBankrate，restoretothecirculationanamountofBanknotesnearlyequivalenttothatwhichhadbeenincirculation

againstthebulliontakenout。Inthemajority，ofcasesofthevariationsinthevalueofourcurrencyrelativetothecurrencies

ofothercountries，whetheroriginatingonthissideortheother，thebalanceofpaymentswouldmallprobabilitybesatisfied

bytheexportofthatamountofbullion。Ifthedrain，however，onthecoffersoftheBankshould，afterareductiontoten

millions，continuesoastogivereasontoapprehendtheexistenceofmoreextensiveanddeeperseatedcausesofdemandfor

themetals，measuresmightbetakenforitscounteraction，withoutproducingalarmanddisturbanceofthemoneymarketontheonehand，orendangeringanextremeandunsafedegreeofreductionoftheBanktreasureontheother。"Alatitudeforvariationbetweenfifteenmillionsandfivemillionswouldaffordamuchgreaterexemptionfromshocksonthemoneymarketthanavariation，asithasrecentlybeen，betweentenmillionsandnothing。"ThattheBankmight，byaregulationofitssecurities，maintainahighaverageamountof—bullion，suchashasherebeen

suggestedoffullytenmillions，cannotadmitofanyreasonabledoubt。AndIbelievethatsucharegulationwouldbemore

easilypracticablethaneitherthatofmaintainingthesecuritieseven，orofpreservingthebullioninanygivenproportionto

theliabilities。Themoneymarketwouldbelessliabletobedisturbedthanundereitherofthetwolatteralter—natives。The

utmostalterationoftherateofdiscounttowhichtheBankmighthaveoccasiontoresortwouldprobablynotexceed1per

cent;andtheoccasionsforanalterationeventothatextentwouldprobablyberare。Asystemlikethiswouldbeless

restrictive，thatis，theprincipleoflimitationwouldoperatelessrigidlyundersucharegulationofthebullion，consistentlywithablending，asatpresent，oftheissueanddepositdepartmentsintheBankofEngland，thanbytheirtotalseparation。"（31）Afterthelapseoffouryearssincethepassageherequotedwaswritten，Iseenothingtoalterinthisrecommendation。The

treasurehasreachedthemaximumwhichIhadcontemplated;andthiscircumstancewillrendermorepracticableanyscheme

ofregulationwhichshouldhaveforitsobjectthemaintenanceofahighaverageamountoftreasure。Themainobjectionor

difficultyinthewayofmaintainingsolargeanaverageamountoftreasureastenmillions，isinitsunproductiveness，andits

consequentdrawbackfromtheprofitsoftheBank：butagainstthisconsiderationmustbesetthegreatersecurityofits

position;and，afterall，theamountisnotlargerthananyprudentbankerwoulddeemitrighttoholdagainstliabilitiessolargeandsofluctuatingasthoseoftheBankofEngland。Inadditiontothisobjection，whichnaturallyhasgreatweight，Itookoccasioninthesamework，p。198，fromwhichthe

foregoingpassagehasbeenextracted，tostateanother，which，althoughinmyopinionofnorealweight，issospeciousandpopularthattheremarkswhichIthenmadeuponitmaybeworthhererepeating。"Oneamongotherreasonsthatmightandprobablywouldbeurgedagainstanyschemeinvolvingsolargeareserveof

bullionashasherebeensuggested，restsonthesuppositionthattheattractingoftheextraamountmustbeprecededby，and

attendedwith，anundueandunnaturalcontractionofthecurrency，theeffectofwhichwouldbe，adepressionofpricestoanunnecessaryextent。"Thisisaconsiderationwithaviewtothepublic，which，coincidingasthereasoningdoeswiththeobjectiononthescoreof

profit，toalargereserve，itisprobableweighedwiththeBankdirectorsintheireffortstostoptheinflux，andtogetridof

whattheyseemtohaveconsideredtheexcess，ofbullion，inthespringof1838。Withreferencetotheinfluxatthattime，Mr。

Norman，inthetractbeforequoted，observed，"ItisprobablethatanincreasewillbefoundinthetreasureoftheBank，betweenitslowestamountlastspringandthe

highestjustprevioustothenextturnoftheexchanges，offromseventoeightmillions。Nowsuchaninfluxoftreasureis

unnatural，andcouldneveroccurwithametalliccirculation。Itseffects，greaterorlessinproportiontotheerror。willbe

accompaniedinthefirstinstancebyadepressionofprices，unnecessaryinextentandcontinuedtoolong，andfinallybyareaction，whichwilloccasionanequallyunnecessaryandfaultyexcessontheother。"p。91。"Whysuchaninfluxoftreasurecouldneveroccurwithametalliccirculation，orwhyitshouldbeconsideredasunnatural，

doesnotveryclearlyappear。Withourveryextendedforeigntrade，whichishabituallyconductedonthefootingofalarge

proportionofourexportsbeingonlongcredits，whileourimportsaremostlypaidforatshortdates，andwithourpresent

restrictionsonthecorntrade，theremightbe，astherehavebeen，ontheonehand，largesuddenpaymentsabroadrequiringa

considerableexportofbullionbeforeanyexcessofmerchandiseexportedcouldbringreturns;and，ontheotherhand，when

thedemandforcornandforotherimports，includingforeignsecurities，ceasedorabated，thereturnsforanexcessofformer

exportswouldbecomingforward，andbullionmustinthatcaseform，forwantofothermeans，alargepartofsuchreturns。

Suchwasthecasein181516，in182022，and，exceptingasregardscorn，suchwasthecasewiththeinfluxofbullionin

1826，andintheearlypartof1838。Iftheportsshouldbeshutagainsttheimportationofcornforthenexttwoorthree

years，and，atthesametime，fromsalutarydistrustorothercauses，thereshouldbeadiminisheddemandforforeign

securities，thereislikelytobeastrongtendencytoaninfluxofthemetals，（32）anditisnoteasytounderstandwhyitshould

notbeequallystrongwithapurelymetallicvariation。TheBankofEnglandmaydoubtless，asin1836and1838，bya

competitionfortheinvestmentofitsdeposits，createareneweddemandforforeignsecurities，andsostoptheinfluxofbullion;butsothedepositdepartmentlikewisemightdoifitsfunctionswereseparatedfromtheissuingdepartment。"Butitistothesupposedunnaturaldepressionofprices，ascribedasaneffectofthecontractionofthecirculationwhichis

assumedtoleadtotheinfluxofthemetals，thatmyremarkisdirected。Thishypothesisrestsuponthecurrencytheoryof

prices，whichsupposesthatthecontractionofthecirculation，insuchacaseasthatalludedto，reducesprices，andthatthe

reducedpricesforceaninfluxofthemetals;whereasthecontraction，orratherthediminutionofthecirculation，isinsuch

casestheconsequenceofafallofpricesfromcausesarisingfromthestateoftrade，andpeculiarcircum—stancesaffecting

thesupplyandcostofproductionontheonehand，andconsumptionontheother。Astoanincreasedvalueoftheprecious

metals，whichmightbesupposedtobetheconsequenceofretainingpermanentlyanadditionoffullyfivemillionsasa

reserveinthecoffersoftheBank，itwould，accordingtoanyreceivedgroundsofcomputation，amounttosoveryminuteapercentage，astohavenoperceptibleinfluence，andmay，therefore，safelybeneglected。"Theviewswhichhaveherebeenpresentedforconsideration，leadtotheconclusionthataunionofthebusinessofbanking

withthatofissue，whenconductedbywellregulatedbanks，iscalculatedtobemuchmoreconvenienttothepublicthanaseparationofthosefunctions。Mr。NormanandMr。Loydhave，verywiselyasIthink，refrainedfromcommittingthemselvestoanyspecificplanfor

carryingtheirviewsoftheseparationoffunctionsintoeffect。Otherwriterswhohaveespousedthesameviewshavenot

beensocautious;andnumerous，therefore，havebeentheschemeswhichhavebeenproposedforestablishingasinglesource

ofissue，and，forthemostpart，agovernmentbank。Itisnotmypurposetoenterintoadetailedexaminationofanyofthem;

butIcannothelpremarkingthat，amongthosewhichhavecomeundermynotice，thegreaterpartarecrudeandundigested，

whilesomeofthemaresofancifulastoborderontheburlesque。Ihaveseennoneinwhichthesupposedadvantagesofthe

planssketchedoutarenotgreatlyexaggerated;whiletheinconveniencesattendingsogreatachangeareunderratedinthe

samedegree，andinallofthemtheargumentsurgedinfavouroftheproposedalterationproceeduponacomplete

misconceptionofthenatureofthemachinery，andtheworkingofthepresentsystem，whichtheyseektodisplace。

SUMMARYOFCONCLUSIONS。TheconclusionswhichIhavethusendeavouredtoestablishare，1。Thatifapurelymetalliccurrencyexistedinacountrysituatedasthisis，transmissionsofthepreciousmetalsmightand

wouldtakeplaceoccasion—allybetweenthisandothercountriestoaconsiderableamount（fiveorsixmillionsatleast），

withoutaffectingtheamountorvalueofthecurrencyofthecountryfromwhichortowhichthetransmissionsweremade;andwithoutbeingacauseoraconsequenceofalterationingeneralprices。2。Thatconsequentlythedoctrinebywhichitismaintainedthateveryexportorimportofbullioninametalliccirculation

mustentailacorrespondingdiminutionof，oradditionto，thequantityofmoneyincirculation，andthuscauseafallorriseofgeneralprices，isessentiallyincorrectandunsound。3。Thatthedistinctionsetupbythecurrencytheorybetweenbanknotesandotherformsofpapercredit，isnotfoundedin

anyessentialdifference，exceptinsofarasrelatestothelowestdenominationofnotes，whicharerequiredinthetransactionsbetweendealersandconsumers;thatis，intheretailtrade，andinthepaymentofwages。4。Thatbillsofexchangemight，butfortheobstacleofstampduties，beextensivelysubstitutedinalltransactionsofpurchase

andsalebetweendealersanddealersforbanknotesof10l。andupwards，andthat，inpointoffact，theywereextensivelysouseduntiladisproportioneddutywaslaiduponthesmallerbills。5。Thatchequesperformthefunctionsofmoneyasconveniently，inmostrespects，asbanknotes，andmoreconvenientlyinmanyrespects。6。Thatbanknotesofthehigherdenominationsareusedforpeculiarpurposes，chieflyinsettlements，suchastheclearing

house，andinsalesoflandedandfixedproperty，asregardsBankofEnglandnotes;andintheprovisionmarketsandcattle

fairs，asregardsthecountrycirculation;purposesforwhichsubstitutesmighteasilybefoundifbanknotesweresuppressed，

bybillsofexchange，andasregardsthesettlementsamongbankers，byexchequerbills，andbywhathaverecentlybeentermedeconomicalexpedients。7。Thattheamountofbanknotesinthehandsofthepublicisdeterminedbythepurposesforwhichtheyarerequired，incirculatingthecapital，andindistributingtherevenuesofthedifferentordersofthecommunity，valuedingold。8。ThatitisnotinthepowerofBanksofIssue，includingtheBankofEngland，tomakeanydirectadditiontotheamountof

notescirculatingintheirrespectivedistricts，howeverdisposedtheymaybetodoso。InthecompetitionofBanksofIssueto

getouttheirnotes，theremaybeanextensionofthecirculationofsomeoneormoreoftheminalargedistrict，butitcanonlybebydisplacingthenotesofrivalbanks。9。ThatneitherisitinthepowerofBanksofIssuedirectlytodiminishthetotalamountofthecirculation;particularbanks

maywithholdloansanddiscounts，andmayrefuseanylongertoissuetheirownnotes;buttheirnotessowithdrawnwillbereplacedbythenotesofotherbanks，orbyotherexpedientscalculatedtoanswerthesamepurpose。10。Thatitisconsequentlyanerrortosupposethat，howeverwellinformedthecountrybankersmightbeofthestateofthe

foreignexchanges，anddisposedtofollowthoseindications，theywouldbeabletoregulatetheircirculationinconformity

withsuchviews。AndthatitisequallyanerrortosupposethattheBankofEnglandcanexerciseadirectpowerovertheexchanges，throughthemediumofitscirculation。11。ThatneitherthecountrybanksnortheBankofEnglandhaveitintheirpowertomakeadditionalissuesoftheirpaper

comeinaidoftheirbankingresources。Alladvancesbywayofloanordis—count，whenthecirculationisalreadyfull，can

onlybemadebyBanksofIssueinthesamewayasbynon—issuingbanks，outoftheirowncapital，orthatoftheirdepositors。12。Thatthepricesofcommoditiesdonotdependuponthequantityofmoneyindicatedbytheamountofbanknotes，nor

upontheamountofthewholeofthecirculatingmedium;butthat，onthecontrary，theamountofthecirculatingmediumistheconsequenceofprices。13。Thatitisthequantityofmoney，constitutingtherevenuesofthedifferentordersoftheState，undertheheadofrents，

profits，salaries，andwages，destinedforcurrentexpenditure，thataloneformsthelimitingprincipleoftheaggregateof

moneyprices，theonlypricesthatcanproperlycomeunderthedesignationofgeneralprices。Asthecostofproductionis

thelimitingprincipleofsupply，sotheaggregateofmoneyincomesdevotedtoexpenditureforconsumptionisthedeterminingandlimitingprincipleofdemand。14。Thatareducedrateofinteresthasnonecessarytendencytoraisethepricesofcommodities。Onthecontrary，itisacauseofdiminishedcostofproduction，andconsequentlyofcheapness。15。Thatitisonlythroughtherateofinterestandthestateofcredit，thattheBankofEnglandcanexerciseadirectinfluenceontheforeignexchanges。16。Thatthegreaterorlessliabilitytovariationintherateofinterestconstitutes，inthenextdegreeonlytothepreservation

oftheconvertibilityofthepaperandthesolvencyofbanks，themostimportantconsiderationintheregulationofourbankingsystem。17。Thatatotalseparationofthebusinessofissuefromthatofbankingiscalculatedtoproducegreaterand。moreabrupt

transitionsintherateofinterest，andinthestateofcredit，thanthepresentsystemofunionofthedepartments。

POSTSCRIPT。Therehasrecentlybeenagooddealofanimationinthemarketsforcolonialproduce，attendedwithariseinthepricesof

severalarticles。Andthisimprovement，andthespeculativefeelingwithwhich，asusualonsuchoccasionsitisaccompanied，

havebeen，accordingtotheprevailingdoctrinewhichentersintoallthereasoningsofbrokersintheircirculars，andintothe

accountsfurnishedtothenewspapers，ascribedtotheabundanceofmoney。NowIwould，inthefirstplace，askthosewho

assignthisasthecauseoftherecentadvanceofpricestopointoutasinglearticleinrespectofwhichtherearenot，inthe

opinionofpersonsmostconversantwiththemarket，sufficientgrounds，byreferencetotheactualandcontingentsupply

comparedwiththerateofconsumption，tojustifyariseofprice。Arise，beitobserved，fromalowerpointofdepression，inthecaseofseveralofthearticles，thanhadeverbeenknown，andinsomecasesbelowthelowestcostofproduction。Duringthegreatandlongcontinuedfall，thedealersbothwholesaleandretail，andthemanufacturers，havingbeen

repeatedlydisappointed，byfindingthepricegivewayaftertheyhadgotintostock，becamedisposedtorunofftheirexisting

stocksbeforetheyre—embarkedinfreshpurchases。Fromtheextensiveprevalenceofthisdisposition，therehasbeen，insome

oftheleadingarticlesofmerchandise，agreatreductionofstocks，bothofrawproduceandoffinishedgoods，inthehands

ofdealers，andmanufacturers，andshopkeepers;atthesametime，theunprecedentedlylowpriceshadextendedthe

consumptionbothathomeandabroad。Attentionbeingatlengthdrawntothisstateofthings，andconfidencebeingacquired

thatpriceshadseentheirlowest，ageneraldispositionhasnaturallyarisentogetintostock。Nowitmustbeclearthat，ifa

dispositionamongdealersandmanufacturerstogetoutofstockisattended，asitisknowntobe，withdullanddeclining

markets，adispositiontoreplenishtheirstockswhengreatlyreducedcannotfailofhavinganoppositeeffect。Andastheyerredintooconfidentananticipationofafurtherfallofprices，theyareliabletoerrintheoppositedirection。Thatsomeriseofprices，undersuchcircumstances，isanecessaryresult，mustbeobvious。Thedegreeoftherisemustbe

matterofopinion，intheexerciseofwhichtheremustbemuchlatitudeformiscalculation，tillitbebroughttothetestof

facts，viz，thesupplyandtheconsumption;thedemandbyconsumersbeingtheultimatelimittothereturnstobereceivedbythewholesalepurchasers，whethermanufacturers，dealers，orspeculators。If，therefore，therebe，astherecanbenodoubtthatthereis，ineveryinstanceoftherecentriseofprices，asufficient，or，at

least，aplausible，reasonforitontheplainmercantilegroundofsupplycomparedwithconsumption，whycallintheaidof

abundanceofmoney，meaningthelowrateofinterest，asacauseoriginatingorevencontributing？Andwhy，ifthelowrate

ofinterestisthepresentstimulustopurchases，diditnotstimulatedealersandspeculatorsatwelve—monthago，whenthe

rateofinterestwasaslowasitisnow，oronlysixmonthsago，whentherewasnotatraceofaspeculativetendencyinthe

marketsforcommodities？orwhy，aboveall，diditnotoperateindeterringthedealersandmanufacturersfromgettingout

ofstock，andinthusarrestingthedeclineofpriceswhich（withtheexceptionofthoseofcorn）tookplacenearly，paripassu，

withthefallintherateofinterest，orasitwouldinthemodernuseofthewordbecalled，theincreasingabundanceofmoneyfrom1840tothesummerof1843？Ihavejustnowbeforemesomeofthecircularsofthemostconsiderablebrokersinthemarketsforcolonialproduce;forit

isinthesethattherecentadvanceofpriceshasgivenoccasiontothesuppositionthatwhatiscalledtheabundanceofmoney

hasbeenthecauseoftherise。Anditisnotalittleamusingtoobserve，thatwhilethewritersofthecircularsthinkit

incumbentuponthem，accordingtotheprevailingfashion，toascribeconsiderableinfluencetotheabundanceofmoney，the

informationwhichtheyconvey，respectingeachofthearticlesthathasbeenthesubjectofadvance，isquitedecisivein

provingthattherecentriseofpriceshasnothingtodowiththelowrateofinterest，butisineachinstanceamplyjustifieduponthesimpleandobviousgroundofadiminutionofsupplyandanincreaseoftheconsumption。Sostrikingandwhimsicalisthisexhibitionoftheprevalenceofwhatmaybecalledcurrencypedantry，thatalthougha

detailedreferencetoactualorcomparativeprices，andthestateofmarkets，formednopartofmyplaninthispublication，I

aminducedtogivethefollowingbriefviewofthem，asshowinghowlittletheybearouttheopinionexpressedinthecirculars，thatitistheabundanceofunemployedcapitalthathasledtotheinvestmentsincommodities。Inacirculardated2dMarch，1844，fullofjustandaccurateinformationofthepositionofthemarketsfortransatlanticproduce，thedetailsrelativetothatpositionareprefacedbythefollowingremarks："Averylargeamountofcapital，bothhereandontheContinent，hasbeenemployedinthepurchaseofgoods，andalmost

everyarticleintheColonialmarkethasalreadyfelttheinfluenceofit。Theseoperationshavenotaltogetherbeeninfluenced

byanycalculationofsupplyanddemand，butwereenteredintofromaconvictionthatthelowestpointofdepressionhad

beenreached，andthattheabundanceofunemployedmoneyandtheimprovedconditionoftradewereatlengthaboutto

causeageneraladvanceinprices。Thiseffecthasbeenpartiallyattained;duringthepastfortnightanincreasedvalueof

fromtentofifteenpercent。hasbeenrealiseduponcoffee，sugar，rice，andmanyminorarticles，andmoreanimationhasbeenwitnessedinMincingLanethanhasexistedforthelasttenyears。"Itcannotbedeniedthatadecidedmovementhascommenced，andthat，frommanycircumstances，itbearstheprobability

offurtherextension。Thegreatcommercialdifficultiesunderwhichnationshavelabouredhavebeenmainlysurmounted;

thefinancialconditionofGreatBritainhasbeenmateriallyimproved，moneyisstillveryabundant，andtheBankcoffers

arefullofbullion。Allpublicfundshaveincreasedinvalue，andinvestmentsinrailwaysecurities（fromtheirmagnitudea

mostimportantitem）havebecomelesseligible，owingtotheiradvancedprice。Itwasthereforealmostaninevitable

consequence，thatarticlesofforeignmerchandisewhichboresodepressedavalueshouldattractmoneytothem;andif

theoperationsareconfinedwithinreasonablebounds，theyseemlegitimateenough，butitwillbecomeimportanttokeepawatchfuleyeonthemoneymarket。"Informertimes，andinplainmercantilelanguage，theexpressionofthefirstsentencewouldhavebeensimply，thatlarge

purchaseshadbeenmade，andthatpriceshadriseninconsequenceaverynaturalconsequence。Butthepassagefollowing，

whichIhavemarkedwithitalics，exemplifies，inapre—eminentdegree，thetendencytointroducethemoneymarket，àtortet

àtravers，intothemarketsforcommodities。Iftheoperationsalludedtowerenotaltogetherinfluencedbyacalculationof

supplyanddemand，allthatcouldbesaidofthemwouldbe，thattheywereverysillyones。Butitwillbeseenbytheshowing

ofthisverycircular，thattheywereverywiseones，proceedingastheyareprovedtohavedone，uponaverysoundand

rationalviewofsupplyanddemand。Beforeenteringupontheproofstothateffect，Iwouldmerelycallattentiontothelast

sentenceoftheaboveextract，remarking，however，uponitonly，thatinsteadofrecommendingtotheoperatorsinthe

marketsforcommoditiestokeepawatchfuleyeonthemoneymarket，thesounderrecommendationwouldbetoshuttheir

eyesaltogethertoit，buttobewideawaketoallcircumstancesaffectingtheactualandprobablesupplyontheonehand，andtheconsumption，whetherathomeorabroad，ontheother。Thearticlesalludedtointhecircularashavingexperiencedthemostdecidedimprovementare，sugar，coffee，andrice，andthefollowingarethestatementsrespectingthesedescriptionsofproduce："Sugar。TherehasbeenaverysteadydemandforBritishPlantationsugarthroughoutthemonth，andtheWestIndiamarket

continuingverybarelysupplied，especiallywithgoodandfinequalities，andthearrivalsofEastIndiaandMauritiusbeing

verymoderate，priceshaveadvanced1s。@2s。，thegreatestrisebeingonthelowerdescriptions。Anadditionalreasonfor

thisimprovementisthelargeincreaseofthedeliveriesforthefirsttwomonthsofthisyear，whichnotonlyexceedthesame

periodbothof1842and1843，butareinexcessoftheimportstothisdate，bynearly13，000tons，thusproducingalarge

decreaseofstock;tothiscircumstancemayalsobeaddedageneralbeliefthatthecropinJamaicawillbedeficient。The

suppliesnearathandarenotlarge，pricesconsequently，arelikelytobewellmaintained，par—ticularlyasconsumptionis

evidentlysolargelyonthein—crease，"TheImportsofEastandWestIndiaandMauritiusintoGreatBritainamountedto19，000tons，against26，500in1843，

and19，900in1842;thedeliveriesto30，800tons，against26，800in1843，and21，000in1842;andthestockto29，800tons，against39，500in1843，and28，800in1842。"Andthedemandforforeignsugars，independentofshortstocksrelativelytotheexports，wasincreasedbyaprevailingimpressionofthechanceofareductionofduty。###第5章"Coffee。Thebusinessinthehomemarkethasbeenverylarge，thetradehavingboughtextensively。Theimportshavefallen

off，andtheconsumptionhasagainincreased，andastherecannotbeanyarrivalsofimportanceforsometime，thereisa

probabilityofstillfurtheradvanceinprice，astheriseinthevalueofforeigndescriptionssuitableforthehometradewill

preventtheirbeingbroughtintocompetition。Nearly13，000bagsofCeylonhavechangedhands，at65s。@68s。6d。，which

isanadvanceof2s。@3s。sincethefirstultimo。InforeignEastIndiasorts3，000bagsofJavahavebeensoldat36s。@53s。;from3，000@4，000bagsPadangat26s。@32s。;and1，500balesMocha，at68s。75s。"Averyimportantspeculationhastakenplaceinalldescriptionsofforeigncoffee。ItcommencedinHolland，andhasbeen

extendedtoLondon，HamburghandAntwerp，andwilldoubtlessspreadthroughoutEurope。Statementsofanextensive

operationwereprivatelyputforthincertainquartersasearlyasthemonthofNovemberlast，andmeasuresweresilently

preparedwhichhavesincebeeneffectuallyaccomplished。Upwardsof300，000bags（19，000tons）havebeensoldhereand

ontheContinent，andanadvanceof3s。@5s。hasbeenrealizedinthismarketTheselargetransactionsappearedrather

unexpectedly，foralthoughthestocksattheendoftheyearwerelessthanitwascalculatedtheywouldbe，coffeehadbeensolongsubjectedtoneglect，thatitwasnotafavouritearticle。"Couldtherebeabettergroundforariseofpricethanthatthestockswerelessthanhadbeencalculated，andthatthearticle

hadbeenlongneglected？Thereseems，likewise，tohavebeenanideaprevalentthatsomealterationofthedutymighttakeplace。"Rice。Incommonwithmanyarticlesofextensivegeneralconsumption，riceoflatehasattractedattentionasanobjectfor

investment，andlargetransactionsaccordinglyhaveresultedtherefrom，causinganadvanceinpricesofis。1s。6d。percwt。

ThequotationsforBengalbeingnow12s。@12s。6d。percwt。，andJava9s。@12s。Nolessthan50，000bagshavechanged

handsinthecourseofthemonth，andthemarketstillpresentsabuoyantaspect。Theimportsforthefirsttwomonths

amountto11，300bags，against27，200forthecorrespondingperiodin1843，andthestockstandsat107，000bags，against139，600。"Thespeculationincotton，andtherapidriseinthepriceofthatarticle，tookplacesomemonthsago，whenreportsofa

deficiencyofthecropof1843begantogainground。Thatthecrophasbeenadeficientoneisonallhandsnowadmitted;

butastheadvanceofpricehadsomeweekssincereachedtheutmostheight，which，astheresultoftheconflictofopinions

andinterests，thedeficiencyofthecrop，combinedwithaviewtotherateofconsumption，seemedtowarrant，thisarticle

hasnotparticipatedintheanimationwhichisdescribedasprevailinginthemarketsforseveralotherarticlesoftransatlanticproduce。Itwouldwearythereadertogoonwithastatementrespectingotherarticleswhichhadriseninprice。Sufficeittosaythat

thereisnotone，astowhichitisnotproved，that，upontheprincipleofsupplyanddemand，therehasbeenclearlyaground

forsomeadvance，andinnoonedoestheriseofpricehithertoappeartohavebeenunreasonable。

WhileIndigo，ofwhichthecropisreportedtobeunusuallylarge，hasoflateexperiencedafallofup—wardsof20percent。Atthesametime，severalimportantarticles，such，amongothers，asthoseofBalticproduce，areinaperfectlyquiescentstate。Iwillonlyfurthergiveanextractfromanotherpricecurrent，dated5thMarch，1844，forthepurposeofaremarkwhichIshallhavetomakeuponit。Weconfessitwasalwaysmatterofsurprisetoustoseecoffeesolongandsofearfullydepressed，notbeinglikemany

thingswhicharedeterioratedbykeeping;this，onthecontrary，improves。Theabundanceofmoneyhavingatlengthcaused

theattentionofcapitaliststobeturnedtogoods，coffeehasbeenoneofthefavouredarticles;thespeculationcommenced

abroad，butitsinfluencewassooncommunicatedtoourmarket，causing，asbeforenoticed，arapidandgreatadvance。The

bulkofthetransactionsherehavecomprisedBrazilandSt。Domingo。Theimpressionofmanyisthatpriceswillbeforced

upstillhigher;andthis，ismorelikelytobethecase，if，asisstated，thesmallmerchantsandshop—keepersabroadareentirelybareofstock。Here，again，wehavethemoneymarketgratuitouslybroughtin。Itwasnottheabundanceofmoneythatdirectedthe

attentionofthecapitalists（asitisbe—comingthefashiontocallwealthymerchants），butthelowpriceandlongprevious

neglectofthearticle。ButwhatIhaveprincipallytoremarkuponis，theobservationintheaboveextract，thatthesmall

merchantsandshopkeepersabroadhadbecomebareofstock。Thisprocessofgettingoutofstockbythedealerscommonly

accompanies，andisbothcauseandeffectofdecliningpriceswhensupplieshaveincreasedorconsumptionfallenofffor

somelengthoftime，beyondtheexpectationofthedealers;tillstockshavediminished，andconsumptionhasincreased，whenattentionisdrawntothem，andare—actionistheconsequence。Thebestinformedmerchantsanddealersarecommonlythefirsttohavetheirattentionsodrawn;and，asinthecaseofthe

largecoffeespeculation，whichhashaditsorigininHolland，thepartiestoithaving，themostextensivecorrespondenceon

theContinent;werethebestcalculatedandmostlikelytoobtaininformation，andtoactsuccessfullyuponit，respectingan

article，thesuppliesofwhicharederivedfrommanysources，andthestocksandconsumersofwhicharespreadoverthe

wholecivilisedworld。Theyhavethusanticipatedthesmallermerchantsanddealers，asismentionedinthecircular。Itisnot

theirabundanceofcapitalthatdirectedtheirattention，forofcapitaltheyhavelonghadabundance，buttheirattentionbeing

habituallyengagedinthearticle，theymusthavebeencollectinginformationrespectingitforsometime，tilltheybecame

assuredthattheconsumptionattheexistingprices，whichwerebelowthecostofproduction，wasrapidlygainingground

uponthesupply;andwhentheybecamesoassured，theyacteduponthatview，astheywouldequallyhavedone，whether

theinterestofmoneyhadbeen2percentor5percent。Theonlydifferencethatthismakesis，that，inasmalldegree，they

maybeinducedtorealisebyre—saleatalowerpricethanifthecosthadbeensomewhatraisedbythechargeofhigherinterest。Ihavebeeninducedtonoticethispointatsomelength，becauseIamconvincedthatopinionslikethosecontainedinthe

extractswhichIhavequotedarecalculatedtomislead，byinducing，inthosetowhomtheyareanauthority，arelianceupon

asupposedgeneralcause，whichhasnoexistence，totheneglectofthemorecorrectruleofreasoningandacting，according

tothebestinformationastotheactualandcontingentsupplyandtherateofconsumption。Itcannotbetoooftenrepeated，

thatabundanceofmoneyinthehandsofcapitalistsisinitselfacauseofcheapness，whileabundanceofmoneyinthehandsofconsumersisacauseofdearness。ThereisoneotherremarksuggestedbytheaccountsintheCirculars，oftheanimationwhichprevailsinMincingLane，and

thatis，thatthespeculationwhichhasattractedmostattention，namely，thatincoffeehashaditsriseinHolland，andhas

extendedinitseffectstoothertownsontheContinent，aswellastothiscountry;thepricesabroad，however，beingfullas

highashere，or，ifanything，higher。AndIunderstandthat，inthecaseofnearlyallthearticleswhichhaverecently

experiencedaconsiderableadvanceinthiscountry，theadvanceontheContinentofEuropeisinfullythesame，ifnotina

greaterproportion。And，generallyspeaking，pricesontheContinent，Imeanofarticlesofconsumptionofitspopulation，are

fullyashighinproportionastheyarehere，batingcornandsuchotherarticlesasaresubjecttohighorprohibitorydutiesin

thiscountry。Now，accordingtothecurrencytheory，pricesabroadoughttobedepressed，andatamuchlowerrangethan

theyarehere，seeingthelargequantityofthepreciousmetalswhichhasbeenabstractedfromthemtoformtheaccumulationofbullionnowexistinginthecoffersoftheBankofEngland。Thepresentstateoffacts，therefore，maybeconsideredasadding，ifanyadditionwerewanting，totheargumentswhich

haveintheforegoingpagesbeenadducedtoshowtheunsoundnessofthattheory。

APPENDIX。（A。）Fromawishnottoencumbertheargumentasstatedinthetext，towhichthisisanote，Ithenabstainedfromnoticinga

prepossessionorprejudice（besidesthatoftheassumedanalogyofacompulsorygovernmentpaper），which，inthepopular

view，leadsirresistiblytothepersuasion，thatthequantityofmoney，accordingtowhatevermaybethesupposedtestofthe

quantity，musthaveadirectinfluenceonthepricesofcommodities。TheprepossessionorprejudicetowhichIallude，hasitsriseinthefollowingveryspeciousreasoning。Thepricesofcommoditiesdependuponsupplyanddemand;now，giventhesupply，pricesdependuponthedemand。But

moneyistheinstrumentofdemand;therefore，anyin—creaseofmoneymustbeanincreaseofdemand，andmustcon—

sequentlyraiseprices;andasbanknotesarebythedefinitionmoney，anincreaseofbanknotesmustincreasethedemandfor，andraisethepricesofcommodities。ThefollowingpassageofthelateMr。JamesMill’sEssayonPoliticalEconomy（3ded。p。131。）iscalculatedtocountenancethis，which，asexpressedinthesegeneralterms，Icannotbutconsiderasanerroneousview："Itisnotdifficulttoperceivethatitisthetotalamountofthemoneyinanycountry，whichdetermineswhatportionofthatquantityshallexchangeforacertainportionofthegoodsorcommoditiesofthatcountry。"Ifwesupposethatallthegoodsofthiscountryareononeside，allthemoneyontheother，andthattheyareexchangedat

onceagainstoneanother，itisobviousthatonetenth，oronehundredth，oranyotherpartofthegoods，willexchange

againstonetenthoranyotherpartofthewholeofthemoneyandthatthistenth&c。，willbeagreatquantityorsmall

exactlyinproportionasthewholequantityofthemoneyofthecountryisgreatorsmall。Ifthiswerethestateofthefacts，

therefore，itisevidentthatthevaluewoulddependwhollyuponthequantityofit。Itwillappearthatthecaseispreciselythesameintheactualstateofthefacts。"Mr。Senior，inoneofhislecturesonthevalueofmoney，andinthearticleoftheEdinburghReview，whichIhavebefore

referredto，hascommentedontheabovepassageinMr。Mill’sessay，andpointedoutthefallacyofit，inoverlookingthe

consideration，thatitisthecostofproductionofthepreciousmetals，andnottheirquantity，whichconstitutestheirvalue，anddeterminesthepricesofcommoditieswithreferencetothecostofproductionofthelattermeasuredinmetallicvalue。Mr。Mill，however，inasubsequentpassage，page167，illustrateshisviewbyahypotheticalcase。"Suppose，"hesays，"the

markettobeaverynarrowone，ofbreadsolelyontheonesideandmoneyontheother。Supposethattheordinarystateof

themarketisonehundredloavesontheoneside，andonehundredshillingsontheother，thepriceofbreadaccordinglya

shillingaloaf。Suppose，inthesecircumstances，thatthequantityofloavesisincreasedtotwohundred，whilethemoneyremainsthesame;itisobviousthatthepriceofthebreadmustfallonehalf，ortosixpenceperloaf。"ItshouldseemfromthislastpassagethatMr。Millhadsofarqualified，orperhaps，morestrictlyspeaking，lostsightofthe

viewconveyedbytheformerpassage，astoconfinethesuppositionofthequantityofmoneyaffectingprices，tothatwhich

wasinthepocketsorhandsoftheconsumers，goingtomarkettosupplytheirimmediatewants。Andtothislimitedextentit

maybeadmittedthatthequantityofmoneyhasaninfluenceonprices。But，solimited，thispropositionhasnothingin

commonwiththedoctrineofthecurrencytheory，whichascribesaninfluencetothequantityofmoneyindicatedbytheamountofbanknotesincirculation，orbythewholeofthecirculatingmedium。（B。）。Theexpressioninthetextrespectingthepowerofpurchasebypersonshavingcapitalandcreditmayrequiresome

explanation，whichIhavehereaccordinglytogive，accompaniedbyanillustrationofmymeaningbyreferencetoactual

occurrences。WhatImeantosayis，thatapersonhavingthereputationofcapitalenoughforhisregularbusiness，and

enjoyinggoodcreditinhistrade，ifhetakesasanguineviewoftheprospectofariseofpriceofthearticleinwhichhedeals，

andisfavouredbycircumstancesintheoutsetandprogressofhisspeculation，mayeffectpurchasestoanextentperfectly

enormouscomparedwithhiscapital。Theconditionsrequisitearethatthemarketshouldbealargeone，andthearticle

susceptibleofgreatfluctuationofprice，frompoliticalorphysicalcauses;and，infact，itisonlyarticlesofthisdescription

thatarethesubjectofspeculationssufficientlyextensivetoattractnotice。Iproposetoexemplifythisbywhatoccurredin

theTeatradein1839，whenthedisturbancesinChinabrokeout;andbythespeculationmtheCorntradebetween1838and1842。AmongtheearliestspeculationsforanadvanceinthepriceofTea，inconsequenceofourdisputewithChinain1839，were

severalretailgrocersandteadealers。Therewasageneraldispositionamongthetradetogetintostock，thatis，tolayinat

onceaquantitywhichwouldmeettheprobabledemandfromtheircustomersforseveralmonthstocome。Some，however，

amongthem，moresanguineandadventurousthantherest，availedthemselvesoftheircreditwiththeimportersand

wholesaledealersforpurchasingquantitiesmuchbeyondtheestimateddemandintheirownbusiness。Asthepurchaseswere

madeinthefirstinstanceostensibly，andperhapsreally，forthelegitimatepurposes，andwithinthelimitsoftheirregular

business，thepartieswereenabledtobuywith—outtheconditionofanydeposit;whereasspeculators，knowntobesuch，are

requiredtopay2l。perchest，tocoveranyprobabledifferenceofpricewhichmightarisebeforetheexpirationofthe

prompt，which，forthisarticle，isthreemonths。Without，therefore，theoutlayofasinglefarthingofactualcapitalor

currencyinanyshape，theymadepurchasestoaconsiderableextent;and，withtheprofitrealisedontheresaleofapartof

thesepurchases，theywereenabledtopaythedepositonfurtherquantitieswhenrequired，aswastheeasewhentheextentofthepurchasesattractedattention。Inthisway，thespeculationwentonatadvancingprices（100percentandupwards），tillnearlytheexpirationoftheprompt：

andifatthattimecircumstanceshadbeensuchastojustifytheapprehension，whichatonetimeprevailed，thatallfuture

supplieswouldbecutoff，thepricesmighthavestillfurtheradvanced，and，atanyrate，nothaveretrograded。Inthiscase，

thespeculatorsmighthaverealisedbysales，ifnotalltheprofittheyhadanticipated，averyhandsomesum，uponwhichthey

mighthavebeenenabledtoextendtheirbusinessgreatly，ortoretirefromitaltogether，withareputationforgreatsagacity

inthusmakingtheirfor—tune。Butinsteadofthisfavourableresult，itsohappenedthattwoorthreecargoesofTeawhich

hadbeentranshippedwereadmitted，contrarytoexpectation，toentryontheirarrivalhere，anditwasfoundthatfurther

indirectshipmentswereinprogress。Thusthesupplywasincreasedbeyondthecalculationofthespeculators;and，atthe

sametime，theconsumptionhadbeendiminishedbythehighprice。Therewas，consequently，aviolentreactiononthe

market：thespeculatorswereunabletosellwithoutsuchasacrificeasdisabledthemfromfulfillingtheirengagements，and

severalofthemconsequentlyfailed。Amongthese，onewasmentionedwho，havingacapitalnotexceeding1200l。，which

waslockedupinhisbusiness，hadcontrivedtobuy4000chests，valueabove80，000l。，thelossuponwhichwasabout16，000l。TheotherexamplewhichIhavetogiveisthatoftheoperationonthecornmarketbetween1838and1842。Therewasan

instanceofapersonwho，whenheenteredonhisextensivespeculations，was，asitappearedbythesubsequentexamination

ofhisaffairs，possessedofacapitalnotexceeding6000l。，but，beingsuccessfulintheoutset，andfavouredbycircumstances

intheprogressofhisoperations，hecontrivedtomakepurchasestosuchanextent，thatwhenhestoppedpaymenthis

engagementswerefoundtoamounttobetween600，000l。and600，000l。Otherinstancesmightbecitedofpartieswithout

anycapitalatall，who，bydintofmerecredit;wereenabled，whiletheaspectofthemarketfavouredtheirviews，tomakepurchasestoaverygreatextent。Andbeitobserved，thatthesespeculationsinvolvingenormouspurchases，onlittleornocapital，werecarriedonin1839

and1840，whenthemoneymarketwasinitsmostcontractedstate;orwhen，accordingtomodernphraseology，therewasthegreatestscarcityofmoney。（C。）Itisnoteasytoimagineaviewlessreconcilablewithacorrectappreciationofthestateofthingsasregardsprices，m

connectionwiththestateofthecirculationin1839，thaniscontainedinthefollowingquestionandanswerinthe

examinationofMr。NormanbytheCommitteeonBanksofIssue，thematerialfactbeingadmitted，thatpriceswerefirmlymaintainedatthattime，notwithstandinganadvanceintherateofinterestto6percent："1926。Chairman。Werenot，generally，thepricesofcommoditiesin1839maintainedduringthatperiodbythoseissuesof

theBank，indefianceoftheirrule？Ans。Ibelievethatpriceswereveryfirmlymaintainedduring1839;butIbelievealsothat

therestrictivemeasuresoftheBankhadaneffectuponprices;becauseIamconfidentthattheexportationoftheprecious

metalswasbynomeansequaltothedemandforextra—foreignpayment;andinexplanationIwouldsaythatIapprehendthe

foreignpaymentforcornfromtheautumnof1838tohavebeenfullytenmillionssterling，andIcannottraceanexportation

exceedingaboutsixorsevenmillions。"

TheversionintheanswerofMr。Palmertothequestion，subjoined，conveys，asitstrikesme，thecorrectview："1473。Chairman。Ifmorestringentmeasuresforthepurposeofreducingtheaccommodationtothecommerceofthis

countryhadbeentaken（in1839），wouldnotpricesnecessarilyhavecomedown，andexportsthushavebeenincreasedfor

thepurposeofmeetingtheforeignpayment？Ans。Ithinkitisverydoubtful，fromtheextentandpowerofcapitalinthis

country，andthediminishedstocksofgoodstheninthepossessionofthemerchants，whetherthatresultcouldhavebeen

attained。"

（D。）PapercommunicatedbyMr。Pennington。"IthasbeenproposedthatthebusinessoftheBankshallbeseparatedintotwodistinctdepartments，onetobecalledthe

circulationdepartment，theotherthedepositdepartment;thatthecirculatingdepartmentshallholdafixedandunvarying

amountofsecurities，andthatitsfunctionsshallbeconfinedsolelytotheexchangeofgoldfornotes，andofnotesforgold;

andthatthedepositdepartmentshallmanagethefundsintrustedtoitontheordinaryprincipleswhichareobservedbythe

Londonbankers，andindependentlyofthepromissorynotedepartment。

"Itmaybeworthwhiletoinquire，whatwouldbetheprobableoperationofsuchaplan。"Incarryingitintoexecution，Iapprehend，itwouldbeproper，inthefirstinstance，toassigntothedepositdepart—ment

suchaproportionofthesecurities，andofthebullion，inpossessionoftheBank，aswould，together，beequaltotheamount

ofthedeposits。Thus，iftheBankheldeighteenmillionsofsecurities，andninemillionsofbullion，againsteighteenmillions

ofoutstandingnotes，andninemillionsofdeposits，itwouldprobablybedeemedexpedienttoassigntothedeposit

departmentsixmillionsofsecurities，andthreemillionsofbullion，andtoretaininthecirculatingdepartmentsixmillionsofbullion，andtwelvemillionsofsecurities。"Ifsuchaseparationweremade，itisobvious，thatastheexchangeofgoldfornotes，orofnotesforgold，betweenthetwo

branches，wouldnotaffecttheamountofbankpaperinthehandsofthepublic，andassuchinterchangemighttakeplace

frequently，andtoagreatextent，theincreaseordiminutionofoutstandingnoteswouldformnocertaincriterionofthe

amountofpapercirculatingoutofdoors，unlessitwere，atthesametime，knownwhatamountofnoteswasheldbythedepartmentofdeposit。"Disregarding，forthepresent，anyobjectionwhichitmaybesupposedwouldarisefromthisconsideration，letusatonceproceedtoinquirewhateffectwouldbeproducedbyademandupontheBankforbullion。"Theactionandconditionofthedepositdepartmentwillbemoredistinctlyperceived，ifwesupposethat，under

circumstancesabovestated，thewholeofthethreemillionsofbullionareexchanged，onitsfirstestablishment，forthree

millionsofnotes。Thepositionofthetwodepartmentswouldthenbeasfollows：

CirculatingDepartment。DepositDepartmentOutstandingnotes？1，000，000Deposits？，000，000

Securities？2，000，000Securities？，000，000

Bullion9，000，000Banknotes8，000，000"Thisbeingthepositionofthetwodepartments，letussupposethatanadverseforeignexchangehascreatedademandupon

theBankforbullionforexportation。Now，suchademandforbullionmaybesatisfied，eitherbyareductionofthenotesin

thehandsofthepublic，orbyareductionofthedepositsattheBankIftheformer，thentheseparationofthebusinessofthe

Bankintotwodepartmentswillhaveansweredthepurposeexpectedfromit;ifthelatter，then，insoforasrelatestothe

increaseordiminutionofBanknotesinthehandsofthepublic，bytheactionoftheforeignexchange，nosatisfactoryresult

willhavebeenproduced。Inthelattercase，noadvantageintheregulationofthecirculationwillhaveresultedfromtheseparation。"Itmay，perhaps，besaid，thatifthebusinessofbankingwereseparatedfromthatofcirculation，andconductedinthe

mannerandupontheprincipleswhichareadoptedbytheprivatebankersofthemetropolis，adiminutionofdepositswould

beimmediatelyfollowedbythesaleorrealiza—tionofacorrespondingamountofsecurities，andthustheamountofbanknotes，intheexternalcirculation，wouldbereducedtoanextentcommensuratewiththedeliveryofbullion。"Butsuchasaleorrealizationofsecurities，insimilarcircumstances，maybeeffectedunderthepresentsystemof

management。Whethertheexistingsystembecontinued，orthebusinessoftheBankbeseparatedintotwodepartments，the

saleorrealizationofsecuritiesmustdependontheviewsandthediscretionofthedirectorsoftheBank。Theonlydifference

betweenthetwocasesisthis;thatthecounteractingeffectoccasionedbypayingoutbanknotestothedepositorswouldbelimitedtothreemillions：uponthepresentsystemitmaybecarriedtoamuchgreaterextent。"Itmaybeobserved，moreover，thatifthedemandforbullionforexportationshouldexceedthreemillions，andifthat

demandshouldfallonthedepositdepartment，thatdepartmentwouldbereducedtothenecessity，eitherofforcibly

realizingaportionofitssecurities，orofstoppingpaymentatatimewhenthecirculatingdepartmentwasabundantlyprovidedwithspecie。"ItmaybedesirabletoapplytheforegoingprinciplesandobservationstotheactualpositionoftheBank，atcertainperiods，

withinthelastfouryears。

"InJanuary1834theliabilitiesandassetswereasfollows：

Circulation？8，236，000Securities？3，596，000

Deposits13，101，000Bullion9，948，000

Rest2，207，000？3，544，000？3，544，000"If，atthattime，ithadbeendeterminedtodividethebusinessoftheBankintotwodepartments，itwouldprobablyhave

beendeemedexpedienttoassign12，000，000l。ofthesecuritiestothecirculatingdepartment，asafixedamountwhichwas

atnofuturetimetobeexceeded。Theremainingsecuritieswould，ofcourse，gotothebankingdepartment。Theoutstanding

notes，amountingto18，236，000l，wouldthenhavefortheirbasis12，000，000l。ofsecurities，and6，236，000l。ofbullion。

But，asthedepositdepartmentwouldprobablyprefernotestogold，onaccountofthegreaterconvenienceoftheformer，thepositionofthetwodepartmentswouldhavebeenasfollows：CIRCULATING

DEPARTMENTBANKINGDEPARTMENTCirculationSecuritiesBullion。DepositsSecuritiesBankNotesNotesinthe

handsofthepublic18，236Deposits13，101Notesinthe

banking

department3，712Rest2，20711，5965，712

21，94812，0009，94815，308

Thefollowingwouldhavebeenthepositionoftwobranchesattheunder—mentionedperiods：

NotesCirculationSecuritiesBullion1834DecPublic18，304Banking

Department416

18，72012，0006，720

1834JulyPublic18，283Banking

Departmentnil18，28312，0006，283

1836Jan。Public17，262Banking

Department1，814

19，07612，0007，076

Aug。Public18，061Banking

Department264

18，32512，0007，076

1838Jan。Public17，900Banking

Department2，995

20，89512，0008，895

1839Jan。Public18，201Banking

Department3，135

21，33612，0009，336

JulyPublic18，049Banking

Departmentnil18，04912，0003，785

DepositsSecuritiesBankNotes1834Dec。Deposits12，256

Rest2，532

15，77814，362416

1835JulyDeposits11，561

Rest2，644

14，20514，244nil1836Jan。Deposits19，169

Rest2，599

21，76819，9541，814

Aug。Deposits14，796

Rest2，813

17，60917，345264

1838Jan。Deposits10，992

Rest2，813

13，60110，6062，995

1839Jan。Deposits10，315

Rest2，500

12，8159，6803，135

JulyDeposits7，955

Rest2，68610，64112，905nil"Itwillbeseen，bytheforegoingstatement，thatifthebusinessoftheBankhadbeenseparatedintotwodepartmentsin

January1834，andiftherule，whichwehavesupposedtohavebeenatthattimeestablished，had，since，beeninflexibly

adheredto，thepaperissuesofthecirculatingdepartmentinJulylast（1839）wouldhavebeenlessby2，364，000l。thantheir

actualamountatthatperiod，andthecashofthedepositdepartmentwouldhavebeenwhollyexhausted。InJuly1835and

July1839thesecuritiesheldbythedepositdepartmentwouldhaveexceededtheaggregateamountoftherestandthe

deposits。Thisexcessofsecuritiesoverdepositsthisdepartmentcouldnothaveheld，unlessthecirculatingdepartmenthadtransgressedtheprescribedruletoanextentequaltotheamountofthatexcess。"Inordertopreventtheexhaustionofitscash，thebankingdepartmentwould，nodoubt，haveendeavouredtowithdraw

banknotesfromthehandsofthepublic，bydisposingofalargeamountofitssecurities。Arigidadherencetotherulebythe

directorsofthecirculatingdepartment，andadueregardtoitssafetybythemanagersofthebankingbranch，wouldhave

renderedtheamountofthesecuritiesinpossessionofthelatter，inJulylast，lessbythreeorfourmillionsthanitappears

actuallytohavebeen;or，whichcomestothesamething，theamountofbanknotesinthehandsofthepublicatthattime

wouldhavebeenthreeorfourmillionslessthanitappearstohaveactuallybeen。Theconsequencewouldhavebeen，averyseverepressureonthemoneymarket。"Hitherto，wehavesupposedthebusinessoftheBanktobeseparatedintotwodistinctdepartments，andaformal

apportionmentofdebtsandassetstohavebeenmade。Nowwithoutsuchaformalseparationandapportionment，precisely

thesameactionuponthecurrencywouldresultfromthestrictobservanceofthefollowingrule;namely，thattheBankshall

not，uponanyoccasion，issuebanknotesbe—yondacertainamount（thatamountwehavesupposed，tobe12，000，0001。），

exceptuponthedepositofbullion。IfthisrulehadbeenadoptedinJanuary1839，andafterwardsrigidlyadheredto，agreat

reductionofthesecuritiesheldbytheBankwouldhavebeennecessary，inordertoavoidasuspensionofthepaymentof

itsdeposits。Itisprobable，indeed，thatsuchareductionofthesecuritieswouldhavearrestedthedrainoftreasureatan

earlyperiodoftheyear。If，however，thedrainhadcontinued，notwithstandingthereduction，itwouldhavebeennecessary，

inJulylast（1839），tohavecarriedthereductiontotheextentofthreeorfourmillionsbelowtheamountwhichtheBankactuallyheldatthatperiod。"WhetheraformalseparationoftheBankintotwodepartmentstakeplace，ortherulelastmentionedbeadopted，itmaybe

expectedthatthepublicwillbeexposedtoverygreatalternationsofcomparativeeaseanddifficultyintheoperationsofthemoneymarket。"Itmayherebepropertoobserve，thatthedifferencebetweentheruleabovementionedandthatexplainedbyMr。Horsley

PalmerandMr。Normanintheirevidenceisthis;that，whiletheformerrulewouldprecludetheBankfromissuingnotesin

thepaymentofdepositstoagreaterextentthanisequal，inamount，tothedifferencebetweentheamountofnotesatany

timeoutstandingand12，000，000l。，plustheamountofbullioninpossessionoftheBank，thelatterwouldallowtheBankto

substitutenotesfordepositstoanunlimitedextent。Theformerrulewouldbethesameinitsoperationasadivisionofthe

Bankintotwodepartments。Thesoleeffectofthelatterwouldbe，theincreaseordiminutionoftheaggregateamountofthenotesanddepositsoftheBankwiththeincreaseordiminutionofitsbullion。"ThereisonepointconnectedwiththeproposeddivisionoftheBankintotwodepartmentstowhichIhavenotadverted，

butwhichitmaybematerialtonotice。Ithasbeensuggested，that，inordertoincreasethedisposablefundsofthebanking

department，itwouldbedesirablethatacertainportionofthecapitaloftheBank，nowlenttothestate，shouldbemade

availableforbankingpurposes。BythisIapprehenditismeant，thataportionofthe3percentstockinwhichtheoriginal

capitaloftheBankisinvestedshallbesold，andtheproceedsofthesaleinvestedinothersecurities，andincommercialloansanddiscounts，atthepleasureanddiscretionoftheBank。"Ofthissuggestionitmaybeobserved，thatitisaproposaltowithdrawacertainamountoffundsfromtheuseand

employmentofoneclassofpersons，inorderthatitmaybetransferredbytheBanktotheuseandemploymentofanother

classofpersons。Bythisprocessnonewfundswouldbecreatedinthemoneymarket。Thechangewouldbemerelythe

transferoffundsalreadyexistingfromonekindofinvestmenttoanother。Theoperationwouldbethesameasthatofan

individualstockholderwhosellshisstockinordertoemploythemoneyarisingfromthesaleincommercialdiscounts。The

operationoftheindividualstockholderwould，initsconsequences，becomparativelyoflittleimportance;butiffivemillions

oftheoriginalcapitaloftheBankweresold，ashasbeenproposed，andtheproceedsofthesalemixedupwithand

employedinthesamemannerasthedepositsattheBank，althoughnogreaterreserveofbanknotesinthebanking

department，inconsequenceofthisaccessionoffunds，wouldbenecessary，yetthevaryingemploymentoffundsofsuch

magnitude，duringalternateperiodsofcommercialexcitementanddepression，mightproduceaprodigiouseffectuponthe

generalcirculation。Atonetimetheadditional，fundmightbeemployedincommercialloansanddiscounts;atanothertimea

greatpartofitmightbewithdrawnfromthepublic，andheldbytheBank，inbanknotesandspecie;thuscreatinganalternateabundanceandscarcityofmoneyinthehandsofthepublic，atthepleasureoftheBank"ThusfarwascommunicatedtomeinthepaperbyMr。Pennington，andIhavenowtoaddthefollowingextractfromhislettertoMr。K。Finlay："Ifitshouldbedeterminedtoadopttheproposedplanofseparation，themostdifficult，andbyfarthemostimportant，point

forconsideration，wouldbe，todeterminethefixedamountofsecuritiestobeheldbythedepartmentofissue。Ifthatpoint

wereonceproperlysettled，theprincipalobjectoftheplanmightbeattained，withoutaformaldivisionintotwodepartments

ofthebusinessoftheBank。Suchaseparationwouldbedesirableonlyasitmightaffordabettersecuritythancouldbe

otherwiseobtained，thatthefixedamountofsecuritieswould，atnofuturetime，noruponanyoccasion，howeverurgent，beexceeded。"Inthesupposedeaseabovestated，namely，thatprevioustotheseparation，theBankisinpossessionof18，000，000l。of

securities，and9，000，000l。oftreasure，against18，000，000l。ofoutstandingnotes，and9，000，000l。ofdeposits，Ihave

assumedthefixedamountofsecurities，tobeheldbythedepartmentofissue，tobe12，000，000l。Ifthatweretheamount

fixed，theoutstandingnotesmust，accordingtotheprescribedrule，be21，000，000l。，ofwhich，as18，000，000l。aresupposedtobeinthehandsofthepublic，3，000，000l。mustnecessarilybeplacedatthedisposalofthebankingdepartment。"InalettertoMr。Tooke，latelypublished，ColonelTorrenshasassumed，forthepurposeofillustration，thesamesupposed

case，andhasfixedtheamountofsecuritiestobeheldbythecirculatingdepartment，at9，000，000l。Insofixingtheamount，

heplaces（underthecircumstancessupposed）thebankingdepartmentpreciselyinthesituation，thepossibilityofwhichis

contemplatedbyMr。Tooke，thatis，thatofbeingwithouteithernotesorgoldwherewithtopayanyimmediatedemandsof

thedepositors，andofbeingobliged，inordertoobtaintherequisitemeans，toforceonthemoneymarketthesaleofa

portionofitssecurities。Hesupposesthat，forthispurpose，asaleof3，000，000l。ofsecuritieswouldbenecessary，andthat，consequently，the18，000，000l。previouslyinthehandsofthepublic，wouldbereducedto15，000，000l。"Notwithstandingthispressureonthemoneymarket，wearetosupposethatanadverseexchangehasproducedademand

upontheBankforgoldtotheextentof3，000，000l。ColonelTorrensthensays，`The3，000，000l。banknotes，heldbythe

depositdepartmentasreserve，wouldbedrawnoutbythedepositors，andpaidintothecirculatingdepartmentinexchange

forgold;whilethedirectorsofthedepositdepartment，inordertorecoverareserveequaltoone—thirdoftheirdeposits，

wouldbeobligedtosell2，000，000l。ofthe6，000，000l。heldinsecurities。Theresultswouldbe，thatinthecirculating

department，thebullionwouldbereducedfrom9，000，000l。to6，000，000l。，andthecirculationfrom18，000，000l。to

l5，000，000l。;andthatinthedepositdepartment，thedepositswouldbereducedfrom9，000，000l。to6，000，000l。;the

securitiesfrom6，000，000l。to4，000，000l。;andthereservefrom3，000，000l。to2，000，000l。Itisself—evidentthattheeffectwouldbe，notonlyacontractionofthecirculation，butalimitationofthepowertoovertradeindiscountsandloans。’"Toreducetheamountofbanknotesinthehandsofthepublicfrom18，000，000l。to13，000，000l。，would，indeed，effectuallypreventovertradingindiscountsandloans。"AlthoughsoextremeacaseasthatputbyColonelTorrensisnotlikelytooccur，yetifitweretooccur，allthe

consequenceswhichhehasdescribedwouldensue，withoutaseparationofdebtsandassets，fromastrictobservanceofthe

ruledescribedinthepapercommunicatedtoMr。Tooke，namely，thattheBankshallnot，uponanyoccasion，issuenotes

beyondacertainfixedamount，exceptuponreceivingintoitspossessionacorrespondingamountofgold。Adivisionofthe

businessoftheBankintotwodepartments，orastrictobservanceoftherule，withoutthedivision，wouldproducethesameresults。"Thereisonematerialcircumstance，however，whichrendersitdoubtfulwhetheraseparationoffunctionsinthewayproposed，wouldbethemosteffectualmeansofobtainingtherequisitesecurityforthedueobservanceoftherule。"HithertoithasbeenthepracticeoftheBankofEnglandtocancelallnotesbroughtinforpayment，nevertore—issue

them。Now，althoughanadherencetothispracticewouldnotoccasionanyinsuperabledifficultyincarryingoutthe

proposedarrangement，yetitwouldrenderitnecessarythatthebankingdepartmentshouldgenerallykeeponhandavery

largeamountofgold，orofnotessigned，andreadyfordelivery。Toholdaverylargeamountofnotessignedandcompletely

executed，mightbedeemedhazardousorinconvenient。If，inordertoavoidthatriskandinconvenience，thebanking

departmentweretokeeponhandthecancellednotes，andrequirefromthedepartmentofissuenewnotesfortheoldones，

atsuchtimes，andtosuchanextent，assuiteditsoccasionalwantsandconvenience，thedepartmentofissuewouldbe

virtuallyadepositoryforthebankingdepartment，and，thoughthebankingdepartment，adepository，toagreaterorless

extent，forothers。Arrangementsmight，nodoubt，bemade，andasystemofcheckscontrived，thatwouldpreventany

violationoftheprincipleoftheplan;buttherequisitemachinerywouldbeamatterofconsiderablenicety，ofwhichthe

operationandtheobjectwouldnoteasilybeperceivedandunderstoodbythepublic。"

NOTES：

1。G。W。Norman。Evidence。CommitteeonBanksofIssue。QuestionNo。1749。

2。"RemarksonCurrencyandBanking，"byG。W。Norman，1888。3。Althoughthequestionofthetotalannualproduceofgoldandsilvermaynotbeconsideredashavinganyimmediate

bearingonthepointnowunderdiscussion，itisamatterofsuchgeneralinterest，especiallyasrelatestothevastincreaseof

goldinSiberiaandtheOuraldistrictofRussia，thatIaminducedtogiveMr。M’Culloch’sviewofthequantitiesproduced

fromtheseveralsourceswhichhespecifies。Afterstatingfromthemostrecentauthoritiesthequantitiesproducedfromthe

SouthAmericanandMexicanmines，begoesontoobserve"Butinadditiontotheabovequantityof631poodsobtainedfromwashingsinSiberiain1842，thesilverobtainedfromthe

minesofKolyvanyielded，inthecourseofthesameyear，30poodsofgold，whilethewashingsandminesoftheOural

mountainsyieldednofewerthan310poods;makingthetotalproduce971poods;equalto35，030lb。avoirdupois，or

42，571lb。Troy，which，at46l。14s。6d。perlb。isequivalentto1，989，128l。11s。（SupplementauJournaldel’intérieurfor1842，p。16。）Itisnecessary，however，tobearinmindthattheRussiangovernmentimposesaduty，varying，accordingtocircumstances，

from20to25percent，ontheproduceoftheminesandwashings;andtherecanbenodoubtthatthetemptationtoavoidso

heavyaduty，andthepeculationonthepartoftheagentsfortheCrown，mustgiverisetoagreatdealofsmuggling。

Perhaps，undersuchcircumstances，weshouldnotbefarwrongifweestimatedthemetalofwhichnoaccountistakenat

紅hpartoftheabove;buttakingitonlyat1/5thpart，wehaveasumofnolessthan2，386，000l。fortheproduceoftheRussiangoldminesandwashingsin1842。Itmaybesupposed，perhaps，thatitwouldbewrongtotaketheproduceoftheRussianwashingsandminesin1842asafair

criterionoftheirfutureproduce，seeingthattheproduceofthewashingsinthatyearwasnotfarfrombeingtwiceasgreat

asithadbeeninanypreviousyear。Butitistobeobserved，thattheproduceinquestionhasbeenprogressivelyandrapidly

augmentingduringthe13yearsendingwith1842;anditisstatedintheofficialjournalwhencewehaveborrowedthese

details，thatselontouteprobabilité，etàmoins。qu’onnemanqued’ouvriers，lechiffredel’année1843offriradenouveau

surceluidel’annéedernièreunexcédanttrès—considéable。[Wehavesincelearned，asthisarticlewasgoingtopressthatthe

produceoftheRussiangoldandminesandwashingsin1843amountedtonolessthan1342poods！Beingequivalent，

addingonefiftforthequantitynotbroughttoaccount，to3，298，962l。11s。1d。sterling;anincreasewhichisaltogetherextraordinary，andwillhavethemostpowerfulinfluence。]Inadditiontothisvastquantityofgold，Russiaproducesaquantityofsilver，whichmay，perhaps，beestimated，atanaverage，atabout1，300poodsayear，worth，at5s。2d。anounce，193，440l。"WehaveseennoveryrecentaccountsoftheproduceoftheSaxon，Hungarian，andotherEuropeanmines，onwhichit

wouldbeatallsafetoplacemuchreliance。Weincline，however，tothinkthattheirproducemaybesafelyestimatedatabout750，0001。ayear。Hence，supposingwearenearlyrightintheseestimates，thetotalavailableproduceoftheAmerican，European，and

Russo—Asiaticmineswillbe，S。AmericanandMexican，5，600，000l。;U。States，100，000l。;European，750，0001。;

Russo—Asiatic，2，600，000l。;makinginall，9，050，000l。Andtherefore，shouldtheseestimatesbenotverywideofthemark，

itmaybeconcluded，inoppositiontothecommonlyreceivedopinionsonthesubject，thatthesupplyofthepreciousmetalsisatpresentbutlittleinferiortowhatitamountedtowhentheAmericanminesweremostproductive。4。WiththeexceptionofMexicandollars，thisbeingtheforminwhichtheproduceofthesilverminesofAmericaismainly

distributed，andImperials，thegoldencoinofRussia，beingtheforminwhichtheextraordinarilylargeandincreasing

produceoftheAsiaticprovincesofthatempireisaddingtothegeneralsupplyofthepreciousmetals;andfurtherexcepting

thegoldcoinsofthiscountry，which，beingissuedwithoutanychargewhateverformanufacture，arefoundtobeforsome

purposesofexportmoreconvenientthanbarsoringots：withtheseexceptions，theinstancesarerareinwhich，unless

depreciatedathomebycompulsorypapermoney，thecoinsusuallycirculatingasmoneyarewithdrawntosupplyforeignpaymentsofanymagnitude。5。InthetextIhavetakenwhatmaybecalledthemercantileviewofthequestionofinternationaltemporarymovementsof

thepreciousnetals，thegeneralvalueofthembeingassumedtobeconstant;andthisviewIampersuadedisthecorrectone，

forthepurposeeitherofpracticalapplication，orofintelligibleexplanationoftheactualcourseofcommercialaffairs。Asto

themoregeneralandabstrusequestionofhelawswhichdeterminethemorepermanentdistributionofthosemetalsamong

thenationsoftheearth，constitutingthelevelofthecurrenciesofdifferentcountries，asexhibitedintheirgeneralprices，and

inwagesespecially，valuedingoldandsilver，itwouldrequire，inordertohavejusticedonetoit，amorescientific

exposition，embracingamuchwiderrangeofreasoningandoffactsthanwouldcomportwiththescopeorpurposeofmypresentargument。6。InillustrationofthetendencytoapreferenceoftheuseofchequesoverbanknotesinmercantiletransactionsinLondon，

itmayherebeobserved，thatifamerchantinthecourseofhisbusinessreceivesBankofEnglandnotesof100l。or

upwards，andhasonthesamedaytopayawayasumorsumsexactlyequaltothenotes，hewillinmostcasesmakehispaymentbyachequeorcheques，andputthebanknotesintohisbanker’s，tobeplacedtohiscreditagainsthisdrafts。7。Thereisagreatsavingofcoininpayingbydraftsinsteadofbanknotes。Inpaymentsbybanknotesallfractionalpartsof

5l。mustbepaidbycoin。UpontheverynumerouspaymentsintheKingdom（IrelandandScotland，where1l。notesstill

circulate，excepted）thesavingofcointhuseffectedmustamounttoaconsiderablesum。

8。"AnInquiryintotheNatureandEffectsofthePaperCreditofGreatBritain。"

9。"ObservationsontheBankofEngland，andonthePaperCirculationoftheCountry，"p。17。

10。"WealthofNations，"M’Culloch’sEdition，pp。141，142。11。Theregulationofissuesbytheforeignexchangesisanexpressionwhich，likealltherestofthelanguageofthecurrency

theory，conveysnocleardescriptionoftheactualprocess。OnewouldsupposethatthedirectorsoftheBankofEngland，

whoprofesstoregulatetheirissuesbytheforeignexchanges，attendtothevariationsinthequotations，andaccordingas

theseindicateanadverseorafavourabletendency，regulatetheirissues，orrathertheiradvances，accordingly。Nosuch

thing。Itisonlybytheinfluxoreffluxofbullionthattheyareguided，andveryproperlyso。Itisimpossibleforanybut

Exchange—jobberstojudgeofthequotations，allowingforagios，anddates，anddistances。Andtheideathatcountry—bankers

couldjudgeofthem！TheevidenceofMr。PalmerbeforetheCommitteeontheBankCharterin1832，isdecisiveonthispoint：122。"Howdoyouregulateyourissuesaccordingtotheforeignexchanges？Bythenotesbeingreturnedforgoldorsilverforexport。"123。"Doyouregulatethemfromthereturnsyouhaveofwhattheforeignexchangesare，orfromtheactionwhichtakesplaceupontheBank？TheactionwhichtakesplaceupontheBank。"125。"DoyounotsometimesanticipatetheactualactionupontheBank，bythedemandforgold，whenyouseethereisatendencyintheforeignexchange！toproducethataction？No;wewaitfortheactualdemand。"Itisclearthatinpointoffactthedirectorsareandcanbeguidedonlybythestateoftheirtreasure;andthat，insteadofthe

expressionof"regulatingthecirculationbytheforeignexchanges，"thetermsdescriptiveoftheactualprocessshouldbe，

"regulatingthesecuritiesbytheeffluxorinfluxofbullion。"

12。"HistoryofPrices，"voliii。p。193。

13。Itisquiteclearthatbymoneythewitnessmeanscapital，asdistinguishedfromcirculation。14。Thequestionandanswerarebothwrong。TheformerassumesthatthepaymentmustbemadeinBankofEnglandnotes，

andthelatteracquiescesinthesupposednecessity：theymaybepaid，andmostcommonlyare，bysetoffattheclearing—house。15。Itisimpossibletoplaceinaclearerlightthedistinctionbetweencapitalandcirculation，asappliedtopurchasesbetween

dealersanddealers。

16。HistoryofPrices，vol。iii。p。156。

17。Hansard，12thAugust，1842。18。FromthetenourofthequestionswhichwereputtomeandotherwitnessesbyMr。Hume，itmightheinferredthathe

wasofopinionthatbanknotesanddeposits，astheyconferredapowerofpurchase，wereoperativeasacauseofvariations

ofprices。Anditispossiblethatsuchwasthenhisopinion;but，notlongbefore，heseemstohaveentertainedavery

differentview。InthedebateonSirW。Clay’smotionforacommitteeonJointStockBanks，May12。1836，Mr。Humesaid，

"Withregardtotheamountofpaperissues，IthinkIcouldshowthatitwouldbeimpossibletoissuetoomuchpapermoney，

ifitweremadeconvertibleintogoldineverypartofthekingdomondemand。Indeed，Ibelievethatgreatdelusionexistsin

thecountrywithregardtotheeffectonpricesofthecurrency。Myopinionis，thatthequantityofmoneydependsontherise

ofprices;andthattheriseofpricesdoesnotdependonthequantityofmoney。Iholdtheprevailingdoctrinetobeextremely

erroneousonthispoint。ThecurrencydoctorsIknowdifferfromme;buttherehasneverbeenafairopportunityof

demonstratingthetruthofmypropositions。"

19。SeeAppendix（A）。

20。ProgressoftheNation，vol。ii。p。225。21。Discreditisnotanessentialelementinvariationsofthevalueofaninconvertiblepaper，norisdepreciationalwaysa

necessaryconsequenceofinconvertibility。ThenotesoftheBankofEngland，andoftheprivatebanksofthiscountry，were，

fortwoyearsaftertherestriction，ofthesamevalueasiftheyhadbeenconvertible，andneverexperiencedanydiscredit。

ThereweregreatfluctuationsinthecreditofthepapermoneyoftheUnitedStatesofAmericaduringthewarof

independence，andalsointhecaseoftheFrenchassignats，arisingfromfluctuatingopinionsastothechancesofredemption;

andbothdescriptionsbecameultimatelyvaluelessbyexcess，whenallprospectofredemptionhadceased。ButtheRussian

governmentpaper，although，duringtheprogressofitsdepreciation，bysuccessivelyincreasingissues，nocertainorprobable

prospectofredemptionhadbeenheldout，seemsnevertohavesufferedanydiscredit;andthevariationsoftheexchanges，

beyondthoseproducedbythemereexcessofthepaper，weresuchonlyasareincidentaltovariationsinthestateoftrade。

Theeffectofincreasedissuessomadewasexactlyanalogoustoaprogressivedeteriorationofthecoin。Thedepreciationof

thepaperreached75percent。Atthispointitstopped，andthegovernment，byrequiringpaymentsforcustomsandother

taxestobemadeintheproportionoffourpaperrublestoonesilverruble，virtuallyestablishedadegradationofthestandard

inthatproportion，justasifthestandardinthiscountryhadbeenreducedtofiveshillingsforthesovereign。Aftercontinuing

forsomeyearsatthisrateofdepreciation，thevalueofthepaperwasraisedto3rs。60cs。forthesilverruble;andin1888a

silvercurrencywasre—establishedatthe，standardwhichexistedprevioustothedegradation，provisionbeingmadefor

contractsthathadbeenenteredintospecificallyinbanknotes，ascontradistinguishedfromcontractsinsilvermoney。

22。SeeAppendix（B）。23。"IperfectlyagreewithMr。Tookethat，whatevermayhetheincreaseordiminutionintheamountofmoney，hillsof

exchange，ordeposits，aslongastheincreaseordiminutionshallhavetakenplacestrictlyaccordingtothewantsofthe

community，variationinquantityisinnowaychargeablewithvariationinthepricesofcommodities。Pricesmayrisebeyond

theirjustlevel（inevitablytofallagainfromwantofdemand），andthecurrencymayincreaseinquantityinproportion;or

pricesmayhedepressedfromthestateofmarketsathomeorabroadbelowtheirordinarylevel，trademaybecomestagnant，

goodsmaywantpurchasers（inevitablytoriseagainfromincreaseofdemand），andthequantityofcurrencymaydecreasein

proportion;buttheamountofcurrencywillneitherbethecauseofthestateofprices，norwillitinanywayaffectthevalue

ofmoney。"If，insteadofthelineswhichIhavemarkedwithitalics，beintroducedtheclauseaslongasthepaperis

convertible，Iperfectlyassenttothatexpositionofmyviews。

24。AppendixC。25。Iusetheterm"directly，"becauseafteraperiodinwhichtherehasbeenapressureonthemoneymarket，andthebanks

generallyhavecurtailedtheiradvances，astateoflanguor（asMr。Andersoninhisevidence，p。50，observed）isaptto

supervene，andtoheattendedwithdiminishedtransactions，andaconsequentreductionoftheamountofbanknotes。So，on

theotherhand，afteraperiodinwhichalowrateofinterestandrevivedconfidenceandextendedcredithavebeenin

operationforsometime，theconsequentincreaseoftransactionswouldprobablyrequiretobefollowedbyanincreased

amountofbanknotesinthehandsofthepublic。Isayprobably，notnecessarily，becausein1885，notwithstandingthe

unboundedconfidenceandextensionofcreditwhichthenprevailed，therewasnoextension，and，ifanything，areductionof

theamountofnotesincirculation。Ineverycasetheyareaconsequence，andnotacause。

26。Seealso"Reflections，&c。"byS。J。Loyd，p。45。&c。27。Ifaskedwhencetheincreaseofcoincouldcome，theansweris，fromthereservesofthebankers;who，iftheycouldnotanswerallthedemandsuponthembydepositors，muststoppayment。28。ItistoberegrettedthattheCommitteeonBanksofIssuein1840，insteadofexpendingsomuchtimeuponmere

controversialpointsofdefinition，andconfusingthemselvesandthewitnessesbytheambiguoustermsinwhichthequestions

wereconveyed，didnotseefittoexaminesomebothoftheWestEndandCityBankersandthemoney—dealers，astosuchof

thedetailsoftheirbusinessas，withoutanydisclosureoftheirparticulartransactions，mighthaveservedtoexplainforwhat

purposesbanknotesareused，andhowfaritwouldbeinthepoweroftheBankofEnglandtooperatedirectlyupontheamountofthecirculation。29。ThisisassumedasthepositionoftheBankofEnglandinJanuary，1889，inapapercommunicatedtomebyMr。

Pennington，andinsertedinmy"HistoryofPrices，"vol。iii。p。279，283。，sincereprintedinMr。Pennington’sLetterto

KirkmanFinlay，Esq。，in1840，p。97。AsIconsiderMr。Pennington’sknowledgeoftheprinciplesandworkingofthe

currencytobebothprofoundandaccurate，andasmyviewsoftheeffectsofaseparationofissuefrombankingcorrespond

withthosewhichhehasstatedinthepaperherealludedto，Iaminducedagaintoinsertit，andaccordinglyreferthereader

toitintheAppendix（D），withtheadditionofsomeremarksmadebyhimontheletteraddressedtomebyColonelTorrens。

30。"HistoryofPrices，"vol。ii。p。880。

31。"HistoryofPrices，"vol。iii。p。187。32。Thetendencytoaninfluxofthemetalsfromthesecauseshasbeensostrong，thatthebullionintheBankhasexceeded

theutmostamountthatIhadincontemplationaswithinreasonableprobability，beingnowabout16。000，000l。Butofthis

amountthereisreasontosupposethatabout1，000，000l。maybetheconsequenceofthelightgoldtakenoutofcirculation

andreplacedbynotes。

【推荐阅读】幽幽深宫，醒来一梦似千年，重生于下堂妃身躯中的她，将如何手刃仇人? 点击阅读