has been trading on other means than his own, is placed on the defensive, and his whole object is to make himself as strong as possible, an object which cannot be more effectually answered than by keeping by him as large a reserve as possible in paper which the law has made a legal tender. The notes themselves never find their way into the produce market; and if they at all contribute to retard" (or, as I should rather say, to moderate) "the full of prices, it is not by promoting in the slightest degree the effective demand for commodities, not by enabling consumers to buy more largely for consumption, and so giving briskness to commerce, but by a process exactly the reverse, by enabling the holders of commodities to hold on, by obstructing traffic and repressing consumption."
The opportune relief thus afforded to credit, during the excessive contraction which succeeds to an undue expansion, is consistent with the principle of the new system; for an extraordinary contraction of credit, and fall of prices, inevitably draw gold into the country, and the principle of the system is that the bank-note currency shall be permitted, and even compelled, to enlarge itself, in all cases in which a metallic currency would do the same. But, what the principle of the law would encourage, its provisions in this instance preclude, by not suffering the increased issues to take place until the gold has actually arrived: which is never until the worst part of the crisis has passed, and almost all the losses and failures attendant on it are consummated. The machinery of the system withholds, until for many purposes it comes too late, the very medicine which the theory of the system prescribes as the appropriate remedy.[1]
- ↑ True, the Bank is not precluded from making increased advances from its deposits, which are likely to be of unusually large amount, since, at these periods, every one leaves his money in deposit in order to have it within call. But, that the deposits are not always sufficient, was conclusively proved in 1847, when the Bank stretched to the very utmost the means of relieving commerce which its deposits afforded, without allaying the panic, which however ceased at once when the Government decided on suspending the Act.
