第3章

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。