advocates, that of arresting speculative extensions of credit at an earlier period, with a less drain of gold, and consequently by a milder and more gradual process. I think it must be admitted that to a certain degree it is successful in this object.
I am aware of what may be urged, and reasonably urged, in opposition to this opinion. It may be said, that when the time arrives at which the banks are pressed for increased advances to enable speculators to fulfil their engagements, a limitation of the issue of notes will not prevent the banks, if otherwise willing, from making these advances; that they have still their deposits as a source from which loans may be made beyond the point which is consistent with prudence as bankers; and that even if they refused to do so, the only effect would be, that the deposits themselves would be drawn out to supply the wants of the depositors; which would be just as much an addition to the bank notes and coin in the hands of the public, as if the notes themselves were increased. This is true, and is a sufficient answer to those who think that the advances of banks to prop up failing speculations are objectionable chiefly as an increase of the currency. But the mode in which they are really objectionable, is as an extension of credit. If, instead of increasing their discounts, the banks allow their deposits to be drawn out, there is the same increase of currency (for a short time at least), but there is not an increase of loans, at the time when there ought to be a diminution. If they do increase their discounts, not by means of notes, but at the expense of the deposits alone, their deposits (properly so called) are definite and exhaustible, while notes may be increased to any amount, or, after being returned, may be reissued without limit. It is true that a bank, if willing to add indefinitely to its liabilities, has the power of making its nominal deposits as unlimited a fund as its issues could be; it has only to make its advances in a book credit, which is creating deposits out of its own liabilities, the money for which it has made itself responsible becoming a deposit in its
