第17章

BeforetheBankCommittee1858，Mr。Neave，GovernoroftheBankofEngland，testifies:”No。947。(Question:)Whatevermeasuresyouresortto，theamountofnoteswiththepublic，yousay，remainsthesame；thatissomewhereabout£；20，000，000？——Inordinarytimes，theusesofthepublicseemtowantabout£；20，000，000。Therearespecialperiodicalmomentswhen，throughtheyear，theyrisetoanother£；1，000，000or£；1，500，000。

Istatedthat，ifthepublicwantedmore，theycouldalwaystakeitfromtheBankofEngland——”948。Youstatedthatduringthepanicthepublicwouldnotallowyoutodiminishtheamountofnotes；Iwantyoutoaccountforthat-Inmomentsofpanic，thepublichave，asIbelieve，thefullpowerofhelpingthemselvesastonotes；andofcourse，aslongastheBankhasaliability，theymayusethatliabilitytotakethenotesfromtheBank。”——”949。Thenthereseemstoberequired，atalltimes，somewhereabout£；20，000，000oflegaltender？——£；20，000，000ofnoteswiththepublic；itvaries。Itis£；18，500，000，£；19，000，000，£；20，000，000，andsoon；buttakingtheaverage，youmaycallitfrom£；19，000，000to£；20，000，000。”

TestimonyofThomasTookebeforetheCommitteeofLordsonCommercialDistress(C。D。1848/57)，No。3094:”TheBankhasnopowerofitsownvolitiontoextendtheamountofitscirculationinthehandsofthepublic；butithasthepowerofreducingtheamountofthenotesinthehandsofthepublic，nothoweverwithoutaveryviolentoperation。”

J。C。Wright，abankerfor30yearsinNottingham，havingexplainedatlengththeimpossibilityforacountrybanktobeabletokeepmorenotesincirculationthanthepublicneedsandwants，saysaboutnotesoftheBankofEngland(C。D。1848/57)，No。2844:”Iamnotawarethatthereisanycheck”(fornoteissue)”upontheBankofEngland，butanyexcessofcirculationwillgointothedepositsandthusassumeadifferentname。”

ThesameholdstrueforScotland，wherealmostnothingbutpapercirculates，becausethereaswellasinIrelandone-poundnotesarealsoinuseand”theScotchhategold。”Kennedy，DirectorofaScottishbank，declaresthatbankscouldnotevencontracttheircirculationofnotesand”conceivesthatsolongasthereareinternaltransactionsrequiringnotesorgoldtoperformthem，bankersmust，eitherthroughthedemandsoftheirdepositorsorinoneshapeoranother，furnishasmuchcurrencyasthosetransactionsrequire……TheScottishbankscanrestricttheirtransactions，buttheycannotcontroltheircurrency。”(Ibid。，Nos。3446，3448。)Similarly，Anderson，DirectoroftheUnionBankofScotland，states(ibid。，No。3578):”Thesystemofexchangesbetweenyourselves”[amongtheScottishbanks]”preventsanyover-issueonthepartofanyonebank？——Yes；thereisamorepowerfulpreventivethanthesystemofexchanges”[whichhasreallynothingtodowiththis，butdoesindeedguaranteetheabilityofthenotesofeachbanktocirculatethroughoutScotland]，”theuniversalpracticeinScotlandofkeepingabankaccount；everybodywhohasanymoneyatallhasabankaccountandputsineverydaythemoneywhichhedoesnotimmediatelywant，sothatatthecloseofthebusinessofthedaythereisnomoneyscarcelyoutofthebanksexceptwhatpeoplehaveintheirpockets。”

ThesameappliestoIreland，asindicatedinthetestimonyoftheGovernoroftheBankofIreland，MacDonnell，andtheDirectoroftheProvincialBankofIreland，Murray，beforethesameCommittee。

Notecirculationisjustasindependentofthestateofthegoldreserveinthevaultsofthebankwhichguaranteestheconvertibilityofthesenotes，asitisofthewilloftheBankofEngland。”OnSeptember18，1846，thecirculationoftheBankofEnglandwas£；20，900，000andthebullionintheBank£；16，273，000；andonApril5，4847，thenotesincirculationwere£；20，815，000andthebullion£；40，246，000……Itisevidentthatsixmillionofgoldwereexported，withoutanycontractionofthecurrencyofthecountry。”(J。G。Kinnear，TheCrisisandtheCurrency，London，1847，p。5。)Ofcourse，thisappliesonlyunderpresentconditionsprevailinginEngland，andevenhereonlyinsofaraslegislationdoesnotdecreeadifferentrelationshipbetweenthenoteissueandmetalreserve。

Henceonlytherequirementsofbusinessitselfexertaninfluenceonthequantityofcirculatingmoney-notesandgold。Tobenotedhere，inthefirstinstance，aretheperiodicfluctuations，whichrepeatthemselvesannuallyregardlessofthegeneralconditionofbusiness，sothatforthepast20years”thecirculationishighinonemonth，anditislowinanothermonth，andinacertainothermonthoccursamediumpoint。”(Newmarch，B。A。1857，No。1650。)

Thus，inAugustofeveryyearafewmillions，generallyingold，passfromtheBankofEnglandintodomesticcirculationtopaytheharvestexpenses；

sincewagesaretheprincipalpaymentstobemadehere，bank-notesarelessserviceableinEnglandforthispurpose。BythecloseoftheyearthismoneyhasstreamedbacktotheBank。InScotland，therearealmostnothingbutone-poundnotesinsteadofsovereigns；here，then，thenotecirculationisexpandedinthecorrespondingsituation，namely，twiceayear——inMayandNovember——from3millionto4million；afterafortnightthereturnflowbegins，andisalmostcompletedinonemonth。(Anderson，C。D。1848/57，Nos。3595-3600。)

ThenotecirculationoftheBankofEnglandalsoexperiencesamomentaryfluctuationeverythreemonthsbecauseofthequarter]ypaymentof”dividends，”

thatis，interestonthenationaldebt，wherebybank-notesarefirstwithdrawnfromcirculationandthenagainreleasedtothepublic；buttheyflowbackverysoonagain。Weguelin(B。A。1857，No。38)statesthatthisfluctuationinthenotecirculationamountstotwoandahalfmillion。Mr。ChapmanofthenotoriousfirmofOverend，Gurney&；Co。，however，estimatestheamountofdisturbancethuscreatedinthemoney-marketasbeingmuchhigher。”Whenyouabstractfromthecirculation£；6，000，000or£；7，000，000

ofrevenueinanticipationofdividends，somebodymustbethemediumofsupplyingthatintheintermediatetimes。”(B。A。1857，No。5196。)

Farmoresignificantandenduringarethefluctuationsinquantityofcirculatingmediumcorrespondingtothevariousphasesoftheindustrialcycle。Letuslistentoanotherassocieofthatfirmonthisquestion，theesteemedQuakerSamuelGurney(C。D。1848/57，No。2645):”AttheendofOctober(1847)theamountofbank-notesinthehandsofthepublicwas£；20，800，000。Atthatperiodtherewasgreatdifficultyingettingpossessionofbank-notesinthemoney-market。ThisarosefromthealarmofnotbeingabletogettheminconsequenceoftherestrictionoftheActof1844。Atpresent[March1848]theamountofbank-notesinthehandsofthepublicis……£；17，700，000，buttherebeingnownocommercialalarmwhatsoever，itismuchbeyondwhatisrequired。Thereisnobankinghouseormoney-dealerinLondon，butwhathasalargeramountofbank-notesthantheycanuse。”——”2650。Theamountofbank-notes……outofthecustodyoftheBankofEnglandaffordsatotallyinsufficientexponentoftheactivestateofthecirculation，withouttakingintoconsiderationlikewise……

thestateofthecommercialworldandthestateofcredit。”——”2651。Thefeelingofsurplusthatwehaveunderthepresentamountofcirculationinthehandsofthepublicarisesinalargedegreefromourpresentstateofgreatstagnation。Inastateofhighpricesandexcitementoftransaction£；17，700，000wouldgiveusafeelingofrestriction。”

[Aslongasthestateofbusinessissuchthatreturnsofloansmadecomeinregularlyandcreditthusremainsunshaken，theexpansionandcontractionofcirculationdependsimplyupontherequirementsofindustrialistsandmerchants。Sincegold，atleastinEngland，doesnotcomeintoquestioninthewholesaletradeandthecirculationofgold，asidefromseasonalfluctuations，mayberegardedasratherconstantoveralongperiodoftime，thenotecirculationoftheBankofEnglandconstitutesasufficientlyaccuratemeasureofthesechanges。Intheperiodofstagnationfollowingacrisis，circulationissmallest；withthereneweddemand，agreaterneedforcirculatingmediumdevelops，whichincreaseswithrisingprosperity；

thequantityofcirculatingmediumreachesitsapexintheperiodofover-tensionandover-speculation——thecrisisprecipitouslybreaksoutandovernightbank-noteswhichyesterdaywerestillsoplentifuldisappearfromthemarketandwiththemthediscountersofbills，lendersofmoneyonsecurities，andbuyersofcommodities。TheBankofEnglandiscalleduponforhelp——butevenitspowersaresoonexhausted，fortheBankActof1844compelsittocontractitsnotecirculationattheverymomentwhenthewholeworldcriesoutfornotes；whenownersofcommoditiescannotsell，yetarecalledupontopayandarepreparedforanysacrifice，ifonlytheycansecurebank-notes。”Duringanalarm，”saystheearliermentionedbankerWright(loc。cit。，No。2930)，”thecountryrequirestwiceasmuchcirculationasinordinarytimes，becausethecirculationishoardedbybankersandothers。”

Oncethecrisishasbrokenout，itbecomesfromthenononlyaquestionofmeansofpayment。Butsinceeveryoneisdependentuponsomeoneelseforthereceiptofthesemeansofpayment，andnooneknowswhetherthenextonewillbeabletomeethispaymentswhendue，aregularstampedeensuesforthosemeansofpaymentavailableonthemarket，thatis，forbank-notes。Everyonehoardsasmanyofthemashecanlayhandon，andthusthenotesdisappearfromcirculationontheverydaywhentheyaremostneeded。SamuelGurney(C。D。1848/57，No。1116)estimatestheamountofbanknotesbroughtunderlockandkeyinOctober1847，atatimeofsuchalarm，tohavereached£；4to£；5million——F。E。)

Inthisconnection，thecross-examinationofChapman，Gurney’sassociatewhohasbeenpreviouslymentioned，beforetheBankCommitteeof1857isespeciallyinteresting。Ipresenthereitsprincipalcontentsincontext，althoughcertainpointsaretoucheduponwhichweshallnotexamineuntillater。

Mr。Chapmanhasthefollowingtosay:”4963。IhavealsonohesitationinsayingthatIdonotthinkitisaproperconditionofthingsthatthemoney-marketshouldbeunderthepowerofanyindividualcapitalist(suchasdoesexistinLondon)，tocreateatremendousscarcityandpressure，whenwehaveaverylowstateofcirculationout。Thatispossible……thereismorethanonecapitalist，whocanwithdrawfromthecirculatingmedium£；1，000，000or£；2，000，000ofnotes，iftheyhaveanobjecttoattainbyit。”——4965。[IntheGerman4894editionthisreads:4995——Ed。]Abigspeculatorcansell£；1，000，000

or£；2，000，000ofconsolsandthustakethemoneyoutofthemarket。

Somethingsimilartothishashappenedquiterecently，”itcreatesaveryviolentpressure。”

4967。Thenotesarethenindeedunproductive。”Butthatisnothing，ifiteffectshisgreatobject；hisgreatobjectistoknockdownthefunds，tocreateascarcity，andhehasitperfectlyinhispowertodoso。”——

Anillustration:OnemorningtherewasagreatdemandformoneyintheStockExchange；nobodyknewitscause；somebodyaskedChapmantolendhim£；50，000at7%。Chapmanwasastonished，forhisrateofinterestwasmuchlower；heaccepted。Soonafterthatthemanreturned，borrowedanother£；50，000at71/2%，then£；100，000at8%，andwantedstillmoreat81/2%。ThenevenChapmanbecameuneasy。Lateritturnedoutthataconsiderablesumofmoneyhadbeensuddenlywithdrawnfromthemarket。But，saysChapman，”Ididlendalargesumat8%；Iwasafraidtogobeyond；Ididnotknowwhatwascoming。”

Itmustneverbeforgottenthat，although£；19to£；20millioninnotesarealmostconstantlysupposedtoheinthehandsofthepublic，nevertheless，theportionofthesenoteswhichactuallycirculates，and，ontheotherhand，theportionwhichisheldidlebythebanksasareserve，continuallyandsignificantlyvarywithrespecttoeachother。Ifthisreserveislarge，andthereforetheactualcirculationsmall，itmeans，fromthepointofviewofthemoney-market，thatthecirculationisfull，moneyisplentiful；ifthereserveissmall，andthereforetheactualcirculationfull，inthelanguageofthemoney-marketthecirculationislow，moneyisscarce——inotherwords，theportionrepresentingidleloancapitalissmall。Arealexpansionorcontractionofthecirculation，thatisindependentofthephasesoftheindustrialcycle——withtheamountneededbythepublic，however，remainingthesame——occursonlyfortechnicalreasons，forinstance，onthedateswhentaxesortheinterestonthenationaldebtaredue。Whentaxesarepaid，morenotesandgoldthanusualflowintotheBankofEnglandand，ineffect，contractthecirculationwithoutregardtoitsneeds。Thereversetakesplacewhenthedividendsonthenationaldebtarepaidout。Intheformercase，loansaremadefromtheBankinordertoobtaincirculatingmedium。Inthelattercase，therateofinterestfallsinprivatebanksbecauseofthemomentarygrowthoftheirreserves。

Thishasnothingtodowiththeabsolutequantityofcirculatingmedium；

itdoes，however，concernthebankingfirmwhichsetsthiscirculatingmediuminmotionandforwhichthisprocessconsistsinthealienationofloancapitalandforwhichitpocketstheprofitsthereby。

Intheonecase，thereismerelyatemporarydisplacementofcirculatingmedium，whichtheBankofEnglandbalancesbyshort-termloansatlowinterestshortlybeforethequarterlytaxesandalsobeforethequarterlydividendsonthenationaldebtbecomedue；theissueofthesesupernumerarynotesfirstfillsupthegapcausedbythepaymentoftaxes，whiletheirreturnpaymenttotheBanksoonthereafterbringsbacktheexcessofnotesobtainedbythepublicthroughthepaymentofdividends。

Intheothercase，loworfullcirculationisalwayssimplyamatterofdifferentdistributionofthesamequantityofcirculatingmediumintoactivecirculationanddeposits，i。e。，aninstrumentofloans。

Ontheotherhand，if，forexample，thenumberofnotesissuedisincreasedonthebasisofaflowofgoldintotheBankofEngland，thesenotesassistindiscountingbillsoutsideoftheBankandreturntoitthroughtherepaymentofloans，sothattheabsolutequantityofcirculatingnotesisonlymomentarilyincreased。

Ifthecirculationisfullbecauseofbusinessexpansion(whichmaytakeplaceeventhoughpricesarerelativelylow)，thentherateofinterestcanberelativelyhighbecauseofthedemandforloancapitalasaresultofrisingprofitsandincreasednewinvestments。Ifitislow，becauseofbusinesscontraction，orperhapsbecausecreditisveryplentiful，therateofinterestcanbeloweventhoughpricesarehigh。(SeeHubbard。

Presentedition:Ch。XXXIII——Ed)

Theabsoluteamountofcirculationhasadetermininginfluenceontherateofinterestonlyintimesofstringency。Thedemandforfullcirculationcaneitherreflectmerelyademandforahoardingmedium(disregardingthereducedvelocityofthemoneycirculationandthecontinuousconversionofthesameidenticalpiecesofmoneyintoloancapital)owingtolackofcredit，aswasthecasein1847whenthesuspensionoftheBankActdidnotcauseanyexpansionofthecirculation，butsufficedtodrawforththehoardednotesandtochannelthemintocirculation；oritmaybethatmoremeansofcirculationareactuallyrequiredunderthecircumstances，aswasthecasein1857whenthecirculationactuallyexpandedforsometimeafterthesuspensionoftheBankAct。

Otherwise，theabsolutequantityofcirculationhasnoinfluencewhateverupontherateofinterest，since——assumingtheeconomyandvelocityofcurrencytobeconstant——itisdeterminedinthefirstplacebycommodity-pricesandthequantityoftransactions(wherebyoneofthesegenerallyneutralisestheeffectoftheother)，andfinallybythestateofcredit，whereasitbynomeansexertsthereverseeffectuponthelatter；and，secondly，sincecommodity-pricesandinterestdonotnecessarilystandinanydirectcorrelationtoeachother。

DuringthelifeoftheBankRestrictionAct(1797-1819)asurplusofcurrencyexistedandtherateofinterestwasalwaysmuchhigherthanaftertheresumptionofcashpayments。Later，itfellrapidlywiththerestrictionofthenoteissueandrisingbillquotations。In1822，1823，and1832，thegeneralcirculationwaslow，andsowastherateofinterest。In1824，1825，and1836，thecirculationwasfullandtherateofinterestrose。

Inthesummerof1830thecirculationwasfullandtherateofinterestlow。Sincethegolddiscoveries，moneycirculationthroughoutEuropehasexpanded，andtherateofinterestrisen。Therefore，therateofinterestdoesnotdependuponthequantityofcirculatingmoney。

Thedifferencebetweentheissueofcirculatingmediumandthelendingofcapitalisbestdemonstratedintheactualreproductionprocess。Wehaveseen(Vol。II，PartIII)inwhatmannerthedifferentcomponentpartsofproductionareexchangedforoneanother。Forexample，variablecapitalconsistsmateriallyofthemeansofsubsistenceofthelabourers，aportionoftheirownproduct。Butthisispaidouttothempiecemealinmoney。

Thecapitalisthastoadvancethis，anditisverygreatlydependentonthecreditsystemorganisationwhetherhecanpayoutthenewvariablecapitalthefollowingweekwiththeoldmoneywhichhepaidoutinthepreviousweek。Thesameholdsforexchangeamongvariouscomponentpartsofthetotalsocialcapital，forinstance，betweenmeansofconsumptionandmeansofproductionofmeansofconsumption。Themoneyfortheircirculation，aswehaveseen，mustbeadvancedbyoneorbothoftheexchangingparties。

Itremainsthereuponincirculation，butreturnsaftertheexchangehasbeencompletedtotheonewhoadvancedit，sinceithadbeenadvancedbyhimoverandabovehisactuallyemployedindustrialcapital(Vol。II，Ch。

XX)。Underadevelopedsystemofcredit，withthemoneyconcentratedinthehandsofbankers，itisthey，atleastnominally，whoadvanceit。Thisadvancerefersonlytomoneyincirculation。Itisanadvanceofcirculation，notanadvanceofcapitalswhichitcirculates。

Chapman:”5062。Theremaybetimes，whenthenotesinthehandsofthepublic，thoughtheymaybelarge，arenottobehad。Moneyalsoexistsduringapanic；buteveryonetakesgoodcarenottoconvertitintoloanablecapital，i。e。，loanablemoney；everyoneholdsontoitforthepurposeofmeetingrealpaymentneeds。”5099。Thecountrybankersinruraldistrictssenduptheirunemployedbalancestoyourselvesandotherhouses？——Yes。”——”5100。Ontheotherhand，theLancashireandYorkshiredistrictsrequirediscountsfromyoufortheuseoftheirtrades？——Yes。”——”5101。Thenbythatmeansthesurplusmoneyofonepartofthecountryismadeavailableforthedemandsofanotherpartofthecountry？——Preciselyso。”

Chapmanstatesthatthecustomofbankstoinvesttheirsurplusmoney-capitalforshortperiodsinconsolsandtreasurynoteshasdecreasedconsiderablyoflate，eversinceithasbecomecustomarytolendthismoneyatcall，i。e。，payableondemand。Hepersonallyconsidersthepurchaseofsuchpaperforhisbusinessveryimpractical。He，therefore，investshismoneyinreliablebillsofexchange，someofwhichbecomedueeveryday，sothathealwaysknowshowmuchreadymoneyhecancountonfromdaytoday。[5101to5105。]

Eventhegrowthofexportsexpressesitselfmoreorlessforeverycountry，butparticularlyforthecountrygrantingcredit，asanincreasingdemandonthedomesticmoney-market，whichisnotfelt，however，untilaperiodofstringency。Whenexportsincrease，Britishmanufacturersusuallydrawlong-termbillsofexchangeontheexportmerchantsagainstconsignmentsofBritishgoods(5126)——”5127。Isitnotfrequentlythecasethatanunderstandingexiststhatthosebillsaretoberedrawnfromtimetotime？——

[Chapman:]Thatisathingwhichtheykeepfromus；weshouldnotadmitanybillofthatsort……Idaresayitisdone，butIcannotspeaktoathingofthekind。”[TheinnocentChapman。]”5129。Ifthereisalargeincreaseoftheexportsofthecountry，astherewaslastyear，of£；20

million，willnotthatnaturallyleadtoagreatdemandforcapitalforthediscountofbillsrepresentingthoseexports？——Nodoubt。”——”5130。

Inasmuchasthiscountrygivescredit，asageneralrule，toforeigncountriesforallexports，itwouldbeanabsorptionofacorrespondingincreaseofcapitalforthetimebeing？——Thiscountrygivesanimmensecredit；

butthenittakescreditforitsrawmaterial。WearedrawnuponfromAmericaalwaysat60days，andfromotherpartsat90days。Ontheotherhandwegivecredit；ifwesendgoodstoGermany，wegivetwoorthreemonths。”

WilsoninquiresofChapman(5131)，whetherbillsofexchangeonEnglandarenotdrawnsimultaneouslywiththeloadingoftheseimportedrawmaterialsandcolonialgoodsandwhetherthesebillsofexchangedonotarrivesimultaneouslywiththebillsoflading。Chapmanbelievesso，butdoesnotprofesstoknowanythingaboutsuch”commercial”transactionsandsuggeststhatexpertsinthisfieldbequestioned——InexportingtoAmerica，remarksChapman，”thegoodsaresymbolisedintransit”5133；thisgibberishissupposedtomeanthattheEnglishexportmerchantdrawsagainsthiscommoditiesbillsofexchangewithafour-monthtermononeofthebigAmericanbankinghousesinLondonandthisfirmreceivescollateralfromAmerica。”5136。Asageneralrule，arenotthemoreremotetransactionsconductedbythemerchant，whowaitsforhiscapitaluntilthegoodsaresold？——

Theremaybehousesofgreatprivatewealth，whocanaffordtolayouttheirowncapitalandnottakeanyadvanceuponthegoods；butthemostpartareconvertedintoadvancesbytheacceptancesofsomewell-knownestablishedhouses。”——”5137。Thosehousesareresidentin……London，orLiverpool，orelsewhere。”——”5138。Therefore，itmakesnodifference，whetherthemanufacturerlaysouthismoney，orwhetherhegetsamerchantinLondonorLiverpooltoadvanceit；itisstillanadvanceinthiscountry？——

Precisely。Themanufacturerinfewcaseshasanythingtodowithit”

[butin1847inalmosteverycase]。”Amandealinginmanufacturedgoods，forinstance，atManchester，willbuyhisgoodsandshipthemthroughahouseofrespectabilityinLondon；whentheLondonhouseissatisfiedthattheyareallpackedaccordingtotheunderstanding，hedrawsuponthisLondonhouseforsixmonthsagainstthesegoodstoIndiaorChina，orwherevertheyaregoing；thenthebankingworldcomesinanddiscountsthatbillforhim；sothat，bythetimehehastopayforthosegoods，hehasthemoneyallreadybythediscountofthatbill。”——”5139。Althoughhehasthemoney，thebankerislayingoutofhismoney？——Thebankerhasthebill；thebankerhasboughtthebill；heuseshisbankingcapitalinthatform，namely，indiscountingcommercialbills。”[HenceevenChapmandoesnotregardthediscountingofbillsasanadvanceofmoney，butasapurchaseofcommodities——F。E。]——”5140。Stillthatformspartofthedemanduponthemoney-marketinLondon？——Nodoubt；itisasubstantialoccupationofthemoney-marketandoftheBankofEngland。TheBankofEnglandareasgladtogetthesebillsasweare，becausetheyknowthemtobegoodproperty。”——”5141。Inthatway，astheexporttradeincreases，thedemanduponthemoney-marketincreasesalso？——Astheprosperityofthecountryincreases，we”[theChapmans]”partakeofit。”——”5142。Thenwhenthesevariousfieldsfortheemploymentofcapitalincreasesuddenly，ofcourse，thenaturalconsequenceisthattherateofinterestishigher？——

Nodoubtaboutit。”

In5143Chapmancannot”quiteunderstand，thatunderourlargeexportswehavehadsuchoccasionforbullion。”

In5144theesteemedWilsonasks:”Mayitnotbethatwegivelargercreditsuponourexportsthanwetakecreditsuponourimports？——Iratherdoubtthatpointmyself。IfamanacceptsagainsthisManchestergoodssenttoIndia，youcannotacceptforlessthantenmonths。WehavehadtopayAmericaforhercotton(thatisperfectlytrue)sometimebeforeIndiapaysus；butstillitisratherrefinedinitsoperation。”——”5145。

Ifwehavebadanincrease，aswehadlastyear，of£；20millioninourexportsofmanufactureswemusthavehadaverylargeincreaseofimportsofrawmaterialpreviouslytothat”[andinthiswayover-exportsarealreadyidentifiedwithover-imports，andover-productionwithover-trading]，”inordertomakeupthatincreasedquantityofgoods？——Nodoubt。”——”5146。

Weshouldhavetopayaveryconsiderablebalance，thatistosay，thebalance，nodoubt，wouldrunagainstusduringthattime，butinthelongrun，withAmerica……theexchangesareinourfavour，andwehavebeenreceivingforsometimepastlargesuppliesofbullionfromAmerica。”

5148。Wilsonasksthearch-usurerChapman，whetherhedoesnotregardhishighrateofinterestasasignofgreatprosperityandahighrateofprofit。Chapman，evidentlysurprisedatthenaï；veté；ofthissycophant，affirmsthis，ofcourse，buthasenoughintegritytoaddthefollowing:”Therearesome，whocannothelpthemselves；theyhaveengagementstomeet，andtheymustfulfilthem，whetheritisprofitableornot；but，foracontinuance”[ofthehighrateofinterest]，”itwouldindicateprosperity。”——

Bothforgetthatahighrateofinterestcanalsoindicate，asitdidin1857，thatthecountryisunderminedbytherovingcavaliersofcreditwhocanaffordtopayahighinterestbecausetheypayitoutofotherpeople’spockets(whereby，however，theyhelptodeterminetherateofinterestforall)，andmeanwhiletheyliveingrandstyleonanticipatedprofits。Simultaneously，preciselythiscanincidentallyprovideaveryprofitablebusinessformanufacturersandothers。Returnsbecomewhollydeceptiveasaresultoftheloansystem。Thisalsoexplainsthefollowing，whichshouldrequirenoexplanationsofarastheBankofEnglandisconcerned，sinceitdiscountsatalowerratethanotherswhentheinterestrateishigh。”5156。Ishouldsay，”saysChapman，”thatourdiscounts，takingthepresentmoment，whenwehavehadforsolongahighrateofinterest，areattheirmaximum。”[ChapmanmadethisstatementonJuly21，1857，acoupleofmonthsbeforethecrash。]——5157。In1852”[whentheinterestratewaslow]”theywerenotnearlysolarge。”Forbusinesswasindeedagreatdealsounderthen。”5159。Iftherewasagreatfloodofmoneyinthemarket……andthebank-ratelow，weshouldgetadecreaseofbills……In1852therewasatotallydifferentphaseofthings。Theexportsandimportsofthecountrywereasnothingthencomparedtothepresent。”——”5161。Underthishighrateofdiscountourdiscountsareaslargeastheywerein1854。”[Whentherateofinterestwasbetween5and51/2%。

AveryamusingpartofChapman’stestimonyrevealshowthesepeoplereallyregardpublicmoneyastheirownandassumeforthemselvestherighttoconstantconvertibilityofthebillsofexchangediscountedbythem。

Thequestionsandrepliesshowgreatnaï；veté；。Itbecomestheobligationoflegislationtomakethosebillswhichareacceptedbylargefirmsconvertibleatalltime；toensurethattheBankofEnglandshouldunderallcircumstancescontinuetorediscountthemforbill-brokers。Andyetthreeofsuchbill-brokerswentbankruptin1857，owingabout8millionandtheirowninfinitesimallysmallcapitalcomparedwiththesedebts——”5177。Doyoumeanbythatthatyouthinkthatthey”[thatisbillsacceptedbyBaringsorLoyds]”oughttobediscountableoncompulsion，inthesamewaythataBankofEnglandnoteisnowexchangeableagainstgoldbycompulsion？——Ithinkitwouldbeaverylamentablething，thattheyshouldnotbediscountable；amostextraordinaryposition，thatamanshouldstoppayment，whohadtheacceptancesofSmith，Payne&；

Co。，orJones，Loyd&；Co。inhishands，becausehecouldnotgetthemdiscounted。”——”5178。IsnottheengagementofMessrs。Baringanengagementtopayacertainsumofmoneywhenthebillisdue？——Thatisperfectlytrue；butMessrs。Baring，whentheycontractthatengagement，andeveryothermerchantwhocontractsanengagement，neverdreamthattheyaregoingtopayitinsovereigns；theyexpectthattheyaregoingtopayitattheClearingHouse。”——”5180。Doyouthinkthatthereshouldbeanymachinerycontrivedbywhichthepublicwouldhavearighttoclaimmoneybeforethatbillwasduebycallinguponsomebodytodiscountit？——

No，notfromtheacceptor；butifyoumeanbythatthatwearenottohavethepossibilityofgettingcommercialbillsdiscounted，wemustalterthewholeconstitutionofthings。”——”5182。Thenyouthinkthatit”[commercialbill]”oughttobeconvertibleintomoney，exactlyinthesamewaythataBankofEnglandnoteoughttobeconvertibleintogold？——Mostdecidedlyso，undercertaincircumstances。”——”5184。Thenyouthinkthattheprovisionsofthecurrencyshouldbesoshapedthatabillofexchangeofundoubtedcharacteroughtatalltimestobeasreadilyexchangeableagainstmoneyasabank-note？——Ido。”——”5185。YoudonotmeantosaythateithertheBankofEnglandoranyindividualshould，bylaw，becompelledtoexchangeit？——Imeantosaythis，thatinframingabillforthecurrency，weshouldmakeprovisiontopreventthepossibilityofaninconvertibilityofthebillsofexchangeofthecountryarising，assumingthemtobeundoubtedlysolidandlegitimate。”——Thisistheconvertibilityofthecommercialbillascomparedwiththeconvertibilityofbank-notes。”5190。Themoney-dealersofthecountryonly，inpointoffact，representthepublic。”AsdidMr。ChapmanlaterbeforethecourtofassizesintheDavidsoncase。SeetheGreatCityFrauds。[S。Laing，NewSeriesoftheGreatCityFraudsofCole，Davison，andCordon，London——Ed。]”5196。Duringthequarters”[whenthedividendsarepaid]”itis……

absolutelynecessarythatweshouldgototheBankofEngland。Whenyouabstractfromthecirculation£；6，000，000or£；7，000，000ofrevenueinanticipationofthedividends，somebodymustbethemediumofsupplyingthatintheintermediatetime。”[Inthiscaseitisthenaquestionofasupplyofmoney，notofcapitalorloancapital。]”5169。EverybodyacquaintedwithourcommercialcirclemustknowthatwhenweareinsuchastatethatwefinditimpossibletosellExchequerbills，whenIndiabondsareperfectlyuseless，whenyoucannotdiscountthefirstcommercialbills，theremustbegreatanxietyonthepartofthosewhosebusinessrendersthemliabletopaythecirculatingmediumoftherealmondemand，whichisthecasewithallbankers。Thentheeffectofthatistomakeeverymandoublehisreserve。Justseewhattheresultofthatisthroughoutthecountry，thateverycountrybanker，ofwhomthereareabout500，hastosenduptohisLondoncorrespondenttoremithim£；5，000inbank-notes。Takingsuchalimitedsumasthatastheaverage，whichisquiteabsurd，youcometo£；2，500，000takenoutofthecirculation。

Howisthattobesupplied？”

Ontheotherhand，theprivatecapitalists，etc。，whohavemoneydonotletgoofitatanyinterest，fortheysayafterthemannerofChapman，”5195。Wewouldratherhavenointerestatall，thanhaveadoubtaboutourgettingthemoneyincasewerequireit。””5173。Oursystemisthis:Thatwehave£；300，000，000ofliabilitieswhichmaybecalledforatasinglemomenttobepaidinthecoinoftherealm，andthatcoinoftherealm，ifthewholeofitissubstituted，amountsto£；23，000，000，orwhateveritmaybe；isnotthatastatewhichmaythrowusintoconvulsionsatanymoment？”Hencethesuddenchangeofthecreditsystemintoamonetarysystemduringcrises。

Asidefromthedomesticpanicduringcrises，onecanspeakofthequantityofmoneyonlyinsofarasitconcernsbullion，universalmoney。AndthisispreciselywhatChapmanexcludes；hespeaksonlyof23millioninbank-notes。

ThesameChapman:”5218。Theprimarycauseofthederangementofthemoney-market”[inAprilandlaterinOctober1847]”nodoubtwasinthequantityofmoneywhichwasrequiredtoregulateourexchanges，inconsequenceoftheextraordinaryimportationsoftheyear。”

Inthefirstplace，thisreserveofworld-marketmoneyhadthenbeenreducedtoitsminimum。Secondly，itservedatthesametimeassecurityfortheconvertibilityofcredit-money，bank-notes。Itcombinedinthismannertwoquitedifferentfunctions，bothofwhich，however，stemfromthenatureofmoney，sincerealmoneyisalwaysworld-marketmoney，andcredit-moneyalwaysrestsuponworld-marketmoney。

In1847，withoutthesuspensionoftheBankActof1844，”theclearinghousescouldnothavebeensettled。”(5221。)

ThatChapmanhadaninklingoftheimminentcrisis，afterall:”5236。

Therearecertainconditionsofthemoney-market(andthepresentisnotveryfarfromit)，wheremoneyisexceedinglydifficult，andrecoursemusthehadtotheBank。””5239。WithreferencetothesumswhichwetookfromtheBankontheFriday，SaturdayandMonday，the19th，20th，and22ndofOctober，1847，weshouldonlyhavebeentoothankfultohavegotthebillshackontheWednesdayfollowing；themoneyreflowedtousdirectlythepanicwasover。”——OnTuesday，October23，theBankActwassuspendedandthecrisiswasthusbroken。

Chapmanbelieves(5274)thatthebillsofexchangerunningsimultaneouslyonLondonamountto£；100or£；120million。Thisdoesnotincludelocalbillsmadeonprovincialfirms。”5287。WhereasinOctober1856，theamountofthenotesinthehandsofthepublicranupto£；21，155，000，therewasanextraordinarydifficultyinobtainingmoney；notwithstandingthatthepublicheldsomuch，wecouldnottouchit。”——ThiswasduetothefearcausedbythesqueezeinwhichtheEasternBankfounditselfforaperiodoftime(March1856)。

5290-92。Assoonasthepanicisover，”allbankersderivingtheirprofitfrominterestbegintoemploythemoneyimmediately。”

5302。Chapmandoesnotexplaintheuneasinessthatexistswhenthebankreservedecreasesasbeingduetoapprehensionconcerningdeposits，butratherthatallthosewhosuddenlymaybecompelledtopaylargesumsofmoneyarewellawaretheymaybedriventoseektheirlastrefugeinthebankwhenthereisastringencyinthemoney-market；and”ifthebankshaveaverysmallreserve，theyarenotgladtoreceiveus；butonthecontrary。”

Itispretty，incidentally，toobservehowthereserveasarealmagnitudedwindlesaway。BankersholdaminimumforcurrentbusinessneedseitherintheirownhandsortheBankofEngland。Bill-brokersholdthe”loosebankmoneyofthecountry”withoutanyreserve。AndtheBankofEnglandhasnothingtooffsetitsliabilitiesfordepositsbutthereservesofbankersandothers，togetherwithsomepublicdeposits，etc。，whichitpermitstodroptoaverylowlevel，forinstance，to£；2million。

Asidefromthese£；2millioninpaper，then，thiswholeswindlehasabsolutelynootherreservebutthebullionreserveintimesofstringency(andthisreducesthereserve，becausethenoteswhichcomeintoreplaceoutgoingbullionmustbecancelled)，andthuseveryreductionofthisreservebydrainongoldincreasesthecrisis。”5306。Ifthereshouldnotbecurrencytosettlethetransactionsattheclearinghouse，theonlynextalternativewhichIcanseeistomeettogether，andtomakeourpaymentsinfirst-classbills，billsupontheTreasury，andMessrs。Smith，Payne，andsoforth。”——”5307。Then，ifthegovernmentfailedtosupplyyouwithacirculatingmedium，youwouldcreateoneforyourselves？——Whatcanwedo？Thepubliccomein，andtakethecirculatingmediumoutofourhands；itdoesnotexist。”——”5308。YouwouldonlythendoinLondonwhattheydoinManchestereverydayoftheweek？——Yes。”

ParticularlycleverisChapman’sreplytoaquestionposedbyCayley(aBirminghammanoftheAttwoodschool)regardingOver-stone’sconceptionofcapital:”5315。IthasbeenstatedbeforethisCommittee，thatinapressurelikethatof1847，menarenotlookingformoney，butarelookingforcapital；whatisyouropinioninthatrespect？——Idonotunderstandit；weonlydealinmoney；Idonotunderstandwhatyoumeanbyit。”——”5316。Ifyoumeanthereby[commercialcapitalIthequantityofmoneywhichamanhasofhisowninhisbusiness，ifyoucallthatcapital，itforms，inmostcases，averysmallproportionofthemoneywhichhewieldsinhisaffairsthroughthecreditwhichisgivenhimbythepublic”——

throughthemediationoftheChapmans。”5339。Isitthewantofpropertythatmakesusgiveupourspeciepayments？——

Notatall……Itisnotthatwewantproperty，butitisthatwearemovingunderahighlyartificialsystem；andifwehaveanimmensesuperincumbentdemanduponourcurrency，circumstancesmayarisetopreventourobtainingthatcurrency。Isthewholecommercialindustryofthecountrytobeparalysed？

Shallweshutupalltheavenuesofemployment？”——”5338。Ifthequestionshouldarisewhetherweshouldmaintainspeciepayments，orwhetherweshouldmaintaintheindustryofthecountry，IhavenohesitationinsayingwhichIshoulddrop。”

Concerningthehoardingofbank-notes”withaviewtoaggravatethepressureandtotakeadvantageoftheconsequences”hesaysthatthiscanveryeasilyoccur。Threelargebankswouldbesufficient。”5383。Mustitnotbewithinyourknowledge，asamanconversantwiththegreattransactionsofthismetropolis，thatcapitalistsdoavailthemselvesofthesecrisestomakeenormousprofitoutoftheruinofthepeoplewhofallvictimstothem？——Therecanbenodoubtaboutit。”——AndwemaywellbelieveMr。Chapmanonthisscore，althoughhefinallybrokehisownneck，commerciallyspeaking，inanattemptatmaking”enormousprofitoutoftheruinofvictims。”

ForwhilehisassociateGurneysays:Everychangeinbusinessisadvantageousforonewhoiswellinformed，Chapmansays:”Theonesectionofthecommunityknowsnothingoftheother；oneisthemanufacturer，forinstance；whoexportstothecontinent，orimportshisrawcommodity；heknowsnothingofthemanwhodealsinbullion。”(5046。)——AndthusithappenedthatonefinedayGurneyandChapmanthemselves”werenotwellinformed”andwentintoill-famedbankruptcy。

Wehavepreviouslyseenthatnoteissuedoesnotinallcasessignifyanadvanceofcapital。ThefollowingtestimonybyTookebeforetheC。D。

CommitteeofLords，1848，indicatesmerelythatanadvanceofcapital，evenifaccomplishedbythebankthroughanissueofnewnotes，doesnotunqualifiedlysignifyanincreaseinthenumberofcirculatingnotes:”3099。DoyouthinkthattheBankofEnglandforinstancemightenlargeitsadvancesgreatly，andyetleadtonoadditionalissueofnotes？——

Therearefactsinabundancetoproveit；oneofthemoststrikinginstanceswasin1835，whentheBankmadeuseoftheWestIndiadepositsandoftheloanfromtheEastIndiaCompanyinextendedadvancestothepublic。Atthattimetheamountofnotesinthehandsofthepublicwasactuallyratherdiminished。Andsomethinglikethesamediscrepancyisobservablein1846

atthetimeofthepaymentoftherailwaydepositsintotheBank；thesecurities[indiscountanddeposits]wereincreasedtoaboutthirtymillion，whiletherewasnoperceptibleeffectupontheamountofnotesinthehandsofthepublic。”

Asidefrombank-notes，wholesaletradehasanothermediumofcirculation，whichisfarmoreimportanttoit，namely，billsofexchange。Mr。Chapmanshowedushowessentialitisfortheregularflowofbusinessthatgoodhillsofexchangebeacceptedinpaymenteverywhereandunderallconditions。”GiltnichtmehrderTausvesJontof，wassollgelten，Zeter，Zeter！”[”IftheTausves-Jontof’snothing，Whatisleft？0viledetractor！”——

Heine，Disputation——Ed。]*Howarethesetwomediaofcirculationrelatedtooneanother？

Gilbartwritesonthisscore:”……Thereductionoftheamountofthenotecirculationuniformlyincreasestheamountofthebillcirculation。

Thesebillsareoftwoclasses-commercialbillsandbankers’bills……whenmoneybecomesscarce，themoney-lenderssay，’drawuponusandwewillaccept’。Andwhenacountrybankerdiscountsabillforhiscustomer，insteadofgivinghimthecash，hewillgivehimhisowndraftattwenty-onedaysuponhisLondonagent。Thesebillsservethepurposeofacurrency。”(J。

W。Gilbart，AnInquiryintotheCausesofthePressure，etc。，p。

31。)

ThisiscorroboratedinsomewhatmodifiedformbyNewmarch，B。A。1857，No。1426:”Thereisnoconnectionbetweenthevariationsintheamountofbillcirculationandthevariationsinthebank-notecirculation……theonlyprettyuniformresultis……thatwheneverthereisanypressureuponthemoney-market，asindicatedbyariseintherateofdiscount，thenthevolumeofthe。billcirculationisverymuchincreased，andviceversa。”

However，thebillsofexchangedrawnatsuchtimesarebynomeansonlytheshort-termbank-billsmentionedbyGilbart。Onthecontrary，theyarelargelybillsofaccommodation，whichrepresentnorealtransactionatall，orsimplytransactionsmadeforthesolepurposeofdrawingbillsofexchangeonthem；wehavepresentedsufficientillustrationsofboth。

HencetheEconomist(Wilson)saysincomparingthesecurityofsuchbillswiththatofbank-notes:”Notespayableondemandcanneverbekeptoutinexcess，becausetheexcesswouldalwaysreturntothebankforpayment，whilebillsattwomonthsmaybeissuedingreatexcess，therebeingnomeansofcheckingtheissuetilltheyhavearrivedatmaturity，whentheymayhavebeenreplacedbyothers。Forapeopletoadmitthesafetyofthecirculationofbillspayableonlyonadistantday，andtoobjecttothesafetyofacirculationofpaperpayableondemand，is，tous，perfectlyunaccountable。”(Economist，May22，1847，p。575。)

Thequantityofcirculatingbillsofexchange，therefore，likethatofbank-notes，isdeterminedsolelybytherequirementsofcommerce；inordinarytimes，therecirculatedinthefiftiesintheUnitedKingdom，inadditionto39millioninbank-notes，about300millioninbillsofexchange——ofwhich100-120millionweremadeoutonLondonalone。Thevolumeofcirculatingbillsofexchangehasnoinfluenceonnotecirculationandisinfluencedbythelatteronlyintimesofmoneytightness，whenthequantityofhillsincreasesandtheirqualitydeteriorates。Finally，inaperiodofcrisis，thecirculationofbillscollapsescompletely；nobodycanmakeuseofapromisetopaysinceeveryonewillacceptonlycashpayment；

onlythebank-noteretains，atleastthusfarinEngland，itsabilitytocirculate，becausethenationwithitstotalwealthbacksuptheBankofEngland。

WehaveseenthatevenMr。Chapman，whoafterallwashimselfamagnateonthemoney-marketin1857，complainsbitterlythattherewereseverallargemoney-capitalistsinLondonstrongenoughtodisruptthewholemoney-marketatanygivenmomentandtherebybleedwhitethesmallermoney-dealers。

Therewereseveralsuchmoneysharks，hesaid，whocouldconsiderablyintensifyastringencybysellingoneortwomillion’sworthofconsolsandtherebywithdrawinganequalamountofbank-notes(andsimultaneouslyavailableloancapital)fromthemarket。Thejointactionofthreelargebankswouldsufficetotransformastringencyintoapanicbyasimilarmanoeuvre。

ThelargestcapitalpowerinLondonis，ofcourse，theBankofEngland，which，however，ispreventedbyitsstatusasasemi-governmentinstitutionfromshowingitsdominationinsuchabrutalmanner。Neverthelessitalsoknowsenoughaboutwaysandmeansoffeatheringitsnest，particularlysincetheBankActof1844。

TheBankofEnglandhasacapitalof£；14，553，000，andinadditionhasatitsdisposalabout£；3million”balance，”thatis，undistributedprofits，aswellasallmoneycollectedbythegovernmentfortaxes，etc。，whichmustbedepositedwiththeBankuntilitisneeded。Ifweaddtothisthesumofotherdeposits，about£；30millioninordinarytimes，andthebank-notesissuedwithoutreservebacking，weshallfindthatNewmarchmadearatherconservativeestimateinstating(B。A。1857，No。4889):”Isatisfiedmyselfthattheamountoffundsconstantlyemployedinthe[London]money-marketmaybedescribedassomethinglike£；420，000，000；

andofthat£；120，000，000averyconsiderableproportion，somethinglike15or20percent，iswieldedbytheBankofEngland。”

InsofarastheBankissuesnoteswhicharenotcoveredbythebullionreserveinitsvaults，itcreatessymbolsofvaluethatconstituteforitnotonlycirculatingmedium，butalsoadditional——eveniffictitious——capitaltothenominalamountoftheseunbackednotes。Andthisadditionalcapitalyieldsadditionalprofit——InB。A。1857，WilsonquestionsNewmarch:”1563。Thecirculationofabanker，sofarasitiskeptoutupontheaverage，isanadditiont9theeffectivecapitalofthatbanker，isitnot？——Certainly。”——”4564。Thenwhateverprofithederivesfromthatcirculationisaprofitderivedfromcredit，andnotfromacapitalwhichheactuallypossesses？——

Certainly。”

Thesameistrue，ofcourse，forprivatebanksissuingnotes。InhisrepliesNos。1866to1868，Newmarchconsiderstwo-thirdsofallbank-notesissuedbythem(thelastthirdhastobecoveredbybullionreserveinthesebanks)as”thecreationofsomuchcapital”，becausethisamountofcoinissaved。Theprofitofthebankerasaresultofthismaynotbelargerthanthatofothercapitalists。Thefactremainsthathedrawstheprofitoutofthisnationalsavingofcoin。Thefactthatanationalsavingbecomesaprivateprofitdoesnotshockthebourgeoiseconomistintheleast，sinceprofitisgenerallytheappropriationofnationallabour。

Isthereanythingmoreabsurd，forinstance，thantheBankofEngland(1797

to1817)——whosenoteshavecreditonlythankstothestate——takingpaymentfromthestate，i。e。，fromthepublic，intheformofinterestongovernmentloans，forthepowergranteditbythestatetotransformthesesamenotesfrompaperintomoneyandthentolenditbacktothestate？

Thebanks，incidentally，havestillothermeansofcreatingcapital。

AgainaccordingtoNewmarch，thecountrybanks，asmentionedabove，areaccustomedtosendtheirsuperfluousfunds(thatis，BankofEnglandnotes)

toLondonbill-brokers，inreturnfordiscountedbillsofexchange。Withthesebillsofexchange，thebankservesitscustomers，sinceitfollowsarulenottoreissuebillsofexchangereceivedfromitslocalcustomers，inordertopreventtheirbusinesstransactionsfrombecomingknownintheirownneighbourhood。ThesebillsreceivedfromLondonnotonlyservethepurposeofbeingissuedtocustomerswhohavetomakedirectpaymentsinLondon，intheeventtheydonotprefertogetthebank’sowndraftonLondon；theyalsoservetosettlepaymentslocally，sincethebanker’sendorsementsecureslocalcreditforthem。Thus，inLancashire，forinstance，allthelocalbanks’ownnotesandalargeportionofBankofEnglandnoteshavebeenpushedoutofcirculationbysuchbills。(Ibid。，1568

to1574。)

Thusweseeherehowbankscreatecreditandcapitalby1)issuingtheirownnotes，2)writingoutdraftsonLondonrunningupto21days，butpaidincashtothemimmediatelyonissueand3)payingoutdiscountedbillsofexchange，whichareendowedwithcreditprimarilyandessentiallybyendorsementthroughthebank——atleastasfarasconcernsthelocaldistrict。

ThepoweroftheBankofEnglandisrevealedbyitsregulationofthemarketrateofinterest。Intimesofnormalactivity，itmayhappenthattheBankcannotpreventamoderatedrainofgoldfromitsbullion。reservebyraisingthediscountrate[12]becausethedemandformeansofpaymentissatisfiedbyprivatebanks，stockbanksandbill-brokers，whohavegainedconsiderablyincapitalpowerduringthelastthirtyyears。Insuchcase，theBankofEnglandmusthaverecoursetoothermeans。ButthestatementmadebybankerGlyn(ofGlyn，Mills，Currie&；Co。)beforetheC。D。1848/57stillholdsgoodforcriticalperiods:——”1709。UndercircumstancesofgreatpressureuponthecountrytheBankofEnglandcommandstherateofinterest。”——”1740。

Intimesofextraordinarypressure……wheneverthediscountsoftheprivatebankersorbrokersbecomecomparativelylimited，theyfallupontheBankofEngland，andthenitisthattheBankofEnglandhasthepowerofcommandingthemarketrate。”

Nevertheless，theBankofEngland，beingapublicinstitutionundergovernmentprotectionandenjoyingcorrespondingprivileges，cannotexploititspowerasruthlesslyasdoesprivatebusiness。ForthisreasonHubbardremarksbeforetheBankingCommittee(B。A。1857):”2844。[Question:]Isnotitthecasethatwhentherateofdiscountishighest，theBankisthecheapestplacetogo，andthatwhenitisthelowest，thebill-brokersarethecheapestparties？——[Hubbard:]Thatwillalwaysbethecase，becausetheBankofEnglandnevergoesquitesolowasitscompetitors，andwhentherateishighest，itisneverquiteashigh。”

Butitisaseriouseventinbusinesslifeneverthelesswhen，intimeofstringency，theBankofEnglandputsonthescrew，asthesayinggoes，thatis，whenitraisesstillhighertheinterestratewhichisalreadyaboveaverage。”AssoonastheBankputsonthescrew，allpurchasesforforeignexportationimmediatelycease……theexporterswaituntilpriceshavereachedthelowestpointofdepression；andthen，andnottillthen，theymaketheirpurchases。Butwhenthispointhasarrived，theexchangeshavebeenrectified——goldceasestobeexportedbeforethelowestpointofdepressionhasarrived。Purchasesofgoodsforexportationmayhavetheeffectofbringingbacksomeofthegoldwhichhasbeensentabroad，buttheycometoolatetopreventthedrain。”(J。W。Gilbart，AnInquiryintotheCausesofthePressureontheMoney-Market，London，1840，p。35。)——”Anothereffectofregulatingthecurrencybytheforeignexchangesisthatitleadsinseasonsofpressuretoanenormousrateofinterest。”(Loc。cit。，p。40。)——”Thecostofrectifyingtheexchangesfallsupontheproductiveindustryofthecountry，whileduringtheprocesstheprofitsoftheBankofEnglandareactuallyaugmentedinconsequenceofcarryingonherbusinesswithalessamountoftreasure。”(Loc。cit。，p。52。)

But，saysfriendSamuelGurney，”Thegreatfluctuationsintherateofinterestareadvantageoustobankersanddealersinmoney——allfluctuationsintradeareadvantageoustotheknowingman。AndeventhoughtheGurneysskimoffthecreambyruthlesslyexploitingtheprecariousstateofbusiness，whereastheBankofEnglandcannotdosowiththesameliberty，neverthelessitalsomakesaveryprettyprofit——nottomentionthepersonalprofitsfallingintothelapsofitsdirectors，asaresultoftheirexceptionalopportunityforascertainingthegeneralstateofbusiness。AccordingtodatasubmittedtotheLords’Committeeof1817whencashpaymentswereresumed，theseprofitsaccruingtotheBankofEnglandfortheentireperiodfrom1797to1817wereasfollows:

Bonusesandincreaseddividends7，451，136

Newstockdividedamongproprietors7，276，500

Increasedvalueofcapital14，553，000

Total29，280，636This，onacapitalof£；11，642，100overaperiodof19years。(D。

Hardcastle，BanksandBankers，2nded。，London，1843，p。120。)IfweestimatethetotalgainoftheBankofIreland，whichalsosuspendedcashpaymentsin1797，bythesamemethod，weobtainthefollowingresult:

Dividendsasbyreturnsdue18214，736，085

Declaredbonus1，225，000

Increasedassets1，214，800

Increasedvalueofcapital4，185，000

Total11，360，885This，onacapitalof£；3million。(Ibid。，pp。363-64。)

Talkaboutcentralisation！Thecreditsystem，whichhasitsfocusintheso-callednationalbanksandthebigmoney-lendersandusurerssurroundingthem，constitutesenormouscentralisation，andgivestothisclassofparasitesthefabulouspower，notonlytoperiodicallydespoilindustrialcapitalists，butalsotointerfereinactualproductioninamostdangerousmanner-andthisgangknowsnothingaboutproductionandhasnothingtodowithit。

TheActsof1844and1845areproofofthegrowingpowerofthesebandits，whoareaugmentedbyfinanciersandstock-jobbers。

Shouldanyonestilldoubtthattheseesteemedbanditsexploitthenationalandworldproductionsolelyintheinterestsofproductionandtheexploitedthemselves，hewillsurelylearnbetterfromthefollowinghomilyonthehighmoralworthofbankers:”Bankingestablishmentsare……moralandreligiousinstitutions……Howoftenhasthefearofbeingseenbythewatchfulandreprovingeyeofhisbankerdeterredtheyoungtradesmanfromjoiningthecompanyofriotousandextravagantfriends？……Whathasbeenhisanxietytostandwellintheestimationofhisbanker？……Hasnotthefrownofhisbankerbeenofmoreinfluencewithhimthanthejeersanddiscouragementsofhisfriends？Hashenottrembledtobesupposedguiltyofdeceitortheslightestmisstatement，lestitshouldgiverisetosuspicion，andhisaccommodationbeinconsequencerestrictedordiscontinued？……Andhasnotthatfriendlyadvicebeenofmorevaluetohimthanthatofpriest？”

(G。M。Bell，aScottishbankdirector，inThePhilosophyofJointStockBanking，London，1840，pp。46，47。)

Footnotes[11]Averagenumberofdaysduringwhichabank-noteremainedincirculation:

Year£；5Note£；10Note£；20-100£；200-500£；1，000

1792？2362093122

18181481371214813

1846797134128

185670582797(CompilationbyMarshall，CashieroftheBankofEngland，inReportonBankAct，1857。AppendixII，pp。300-01。)

[12]AtthegeneralmeetingofstockholdersoftheUnionBankofLondononJanuary17，1894，PresidentRitchierelatesthattheBankofEnglandraisedthediscountin1893from21/2%inJulyto3and4%inAugust，andsinceitlostwithinfourweeksfully£；41/2millioningolddespitethis，itraisedthebank-rateto5%，whereupongoldflowedbacktoitandthebank。ratewasreducedto4%inSeptemberandthento3%inOctober。Butthisbank-ratewasnotrecognisedinthemarket。”Whenthebank-ratewas5%，thediscountratewas31/2%，andtherateformoney21/2%；whenthebank-ratefellto4%，thediscountratewas23/8%andthemoneyrate13/4%；

whenthebank-ratewas3%，thediscountratefellto11/2%

andthemoneyratetosomethingbelowthat。”(DailyNews，January18，1894。)——F。E。

Capital，Vol。3，Chapter34KarlMarxCAPITALVol。III

THEPROCESSOF

CAPITALISTPRODUCTIONASAWHOLEPartV

DIVISIONOFPROFITINTOINTERESTANDPROFIT

OFENTERPRISE。

INTEREST-BEARINGCAPITALCHAPTER34

TheCurrencyPrincipleandtheEnglishBankLegislationof1844

[Inaformerwork，Ricardo’stheoryonthevalueofmoneyasrelatedtocommodity-priceshasbeenanalysed；wecan，therefore，confineourselvesheretotheindispensable。AccordingtoRicardo，thevalueofmetallicmoneyisdeterminedbythelabour-timeincorporatedinit，butonlyaslongasthequantityofmoneystandsincorrectrelationshiptotheamountandpriceofcommoditiestobeexchanged。Ifthequantityofmoneyrisesabovethisratio，itsvaluefallsandcommodity-pricesrise；ifitfailsbelowthecorrectratio，itsvaluerisesandcommodity-pricesfall-assumingallotherconditionsequal。Inthefirstcase，thecountryinwhichthisexcessgoldexistswillexportthegoldwhosevaluehasdepreciatedandimportcommodities；inthesecondcase，goldwillflowtothosecountriesinwhichitisassessedaboveitsvalue，whiletheunder-assessedcommoditiesflowfromthesecountriestoothermarkets，wheretheycommandnormalprices。

Sinceunderthesecircumstances”golditselfmaybecome，eitherascoinorbullion，atokenofmetallicvalueofgreaterorsmallermagnitudethanitsownvalue，itisself-evidentthatconvertiblebank-notesincirculationmustsharethesamefate。Althoughbank-notesareconvertible，andthereforetheirrealvaluecorrespondstotheirnominalvalue，theaggregatecurrencyconsistingofmetalandofconvertiblenotesmayappreciateordepreciateinaccordancewithitsaggregatequantity，forreasonsalreadystated，risingaboveorfallingbelowtheleveldeterminedbytheexchange-valueofcirculatingcommoditiesandthemetallicvalueofgold……Thisdepreciation，notofpaperascomparedwithgold，butofgoldandpapertakentogether，oroftheaggregatecurrencyofacountry，isoneofRicardo’sprincipaldiscoverieswhichLordOverstoneandCo。pressedintotheirserviceandmadeafundamentalprincipleofSirRobertPeel’sbanklegislationof1844

and1845。”(Loc。cit。，p。155。)

WeneednothererepeatademonstrationoftheincorrectnessofthisRicardiantheorywhichisgiveninthecitedwork。WearemerelyinterestedinthewayRicardo’stheseswereelaboratedbythatschoolofbanktheoristswhodictatedPeel’sabove-mentionedBankActs。”Thecommercialcrisesofthe19thcentury，especiallythegreatcrisesof1825and1836，didnotresultinanynewdevelopmentsintheRicardiantheoryofmoney，buttheydidfurnishnewapplicationsforit。Thesewerenolongerisolatedeconomicphenomena，suchasthedepreciationofpreciousmetalsinthe16thand17thcenturiesaccordingtoHume，orthedepreciationofpapermoneyinthe18thandearly19thcenturiesaccordingtoRicardo；

thesewereinsteadtheviolentstormsintheworld-marketwhereintheconflictofallelementsofthecapitalistproductionprocessdischargesitself，andwhoseoriginandcureweresoughtinthemostsuperficialandabstractsphereofthisprocess，thesphereofmoneycirculation。Theactualtheoreticalassumptionfromwhichtheschoolofeconomicweatherprophetsproceeds，isactuallyreducedtothedogmathatRicardodiscoveredthelawsgoverningthepurelymetalliccurrency。Theonlythingremainingforthemtodowastosubordinatecreditandbank-notecirculationtotheselaws。”Themostgeneralandpalpablephenomenonincommercialcrisesisthesuddengeneraldeclineinpricesfollowingaprolongedover-allrise。Thegeneraldeclineincommodity-pricesmaybeexpressedasariseintherelativevalueofmoneywithrespecttoallcommodities，andthegeneralpriceriseasadeclineintherelativevalueofmoney。Ineitherexpressionthephenomenonisdescribedbutnotexplained……ThedifferentwordingleavestheproblemaslittlechangedaswoulditstranslationfromGermanintoEnglish。Ricardo’stheoryofmoneywasthereforeexceedinglyopportune，becauseitlendstoatautologythesemblanceofastatementofcausalrelationship。Whencecomestheperiodicgeneralfallincommodity-prices？Fromtheperiodicriseoftherelativevalueofmoney。Whencethegeneralperiodicriseinprices？Fromtheperiodicdeclineintherelativevalueofmoney。Itmighthavebeenstatedwithequaltruththattheperiodicriseandfallofpricesisduetotheirperiodicriseandfall……Oncethetautologyisadmittedasacausalrelationship，therestfollowseasily。Ariseincommodity-pricesiscausedbyadeclineinthevalueofmoneyandadeclineinthevalueofmoneyiscaused，asweknowfromRicardo，byanover-supplyofcurrency，i。e。，ariseinthevolumeofcurrencyovertheleveldeterminedbyitsownintrinsicvalueandtheintrinsicvalueofcommodities。Similarly，ageneraldeclineincommodity-pricesisexplainedbyariseinthevalueofmoneyaboveitsintrinsicvalueinconsequenceofunder-supplyofcurrency。

Thus，pricesriseandfallperiodically，becausethereisperiodicallytoomuchortoolittlemoneyincirculation。Shouldapricerisehappentocoincidewithcontractedmoneycirculation，andafallinpriceswithexpandedcirculation，itmaybeasserteddespitethisthatthequantityofmoneyincirculationhas，thoughnotabsolutely，yetrelativelyincreasedordeclinedinconsequenceofacontractionorexpansionofthevolumeofcommoditiesinthemarket，evenifthiscannotbestatisticallyproved。

WehaveseenthataccordingtoRicardothesegeneralpricefluctuationsmusttakeplaceevenwithapurelymetalliccurrency，butthattheyalternativelybalanceoneanother；thus，e。g。，anunder-supplyofcurrencycausesafallinprices，theexportofcommoditiesabroad，butthisexportcausesanimportofgoldfromabroad，whichinturnbringsaboutapricerise；

theoppositemovementtakingplaceinthecaseofanover-supplyofcurrency，whencommoditiesareimportedandgoldisexported。But，sincedespitethesegeneralpricefluctuationswhichareinperfectaccordwithRicardo’smetalliccurrency，theirturbulentandviolentform，theircrisisform，belongstotheperiodofdevelopedcreditsystem，itiscrystalclearthattheissueofbank-notesisnotexactlyregulatedbythelawsofmetalliccurrency。Metalliccurrencyhasitsremedyintheimportandexportofpreciousmetal，whichimmediatelyenterscirculationascoinandthus，byitsinfloworoutflow，causescommodity-pricestofallorrise。Thesameeffectonpricesmustnowbeexertedartificiallybybanksthroughimitatingthelawsofmetalliccurrency。Ifgoldiscominginfromabroaditprovesthatcurrencyisinunder-supply，thatthevalueofmoneyistoohighandcommodity-pricestoolow，and，consequently，thatbank-notesmustbeputintocirculationinproportiontothenewlyimportedgold。

Ontheotherhand，notesmustbewithdrawnfromcirculationinproportiontothegoldexportedfromthecountry。Theissueofbank-notes，inotherwords，mustberegulatedbytheimportandexportofpreciousmetalorbytherateofexchange。Ricardo’sfalseassumptionthatgoldisonlycoin，and，therefore，allimportedgoldswellsthecurrency，causingpricestorise，whileallexportedgoldreducesthecurrency，leadingtoafallinprices——thistheoreticalassumptionishereturnedintothepracticalexperimentofputtinganamountofcoinincirculationequalineverycasetotheamountofgoldavailable。LordOverstone(bankerofJonesLoyd)，ColonelTorrens，Norman，Clay，Arbuthnotandahostofotherwriters，knowninEnglandasadvocatesofthe’CurrencyPrinciple’，havenotonlypreachedthisdoctrine，butsucceededin1844and1845withtheaidofSirRobertPeel’sBankActsinmakingitthebasisofEnglishandScottishbanklegislation。

Itsignominiousfailure，boththeoreticalaswellaspractical，followinguponexperimentsonthebroadestnationalscale，canbetreatedonlyinconnectionwiththetheoryofcredit。”(Loc。cit。，pp。165-68。)

ThecritiqueofthisschoolwasfurnishedbyThomasTooke，JamesWilson(intheEconomistof1844to1847)andJohnFullarton。Butwehaveseenonseveraloccasions，particularlyinChapterXXVIIIofthisbook，howincompletelythey，too，sawthroughthenatureofgold，andhowuncleartheywereabouttherelationshipofmoneyandcapital。WequoteheremerelyafewinstancesinconnectionwiththetransactionsoftheCommitteeoftheLowerHouseof1857concerningPeel’sBankActs(B。C。1857)——F。E。]

J。G。Hubbard，formerGovernoroftheBankofEngland，testifies:”2400。

Theeffectoftheexportofbullion……hasnoreferencewhatevertothepricesofcommodities。Ithasaneffect，andaveryimportantone，uponthepriceofinterest-bearingsecurities，because，astherateofinterestvaries，thevalueofcommoditieswhichembodiedthatinterestisnecessarilypowerfullyaffected。”——Hepresentstwotablescoveringtheyears1834

to1843，and1845to1853，*whichshowthatthepricevariationsoffifteenmajorcommercialarticleswerequiteindependentoftheexportandimportofgoldandtheinterestrate。Ontheotherhand，theyshowacloseconnectionbetweentheexportandimportofgold，whichis，indeed，the”representativeofouruninvestedcapital，”andtheinterestrate——”[2402]In1847，averylargeamountofAmericansecuritieswereretransferredtoAmerica，andRussiansecuritiestoRussia，andothercontinentalsecuritiesweretransferredtothoseplacesfromwhichwedrewoursuppliesofgrain。”

ThefifteenmajorarticlesonwhichthefollowingtablesofHubbardarebasedincludecotton，cottonyarn，cottonfabrics，wool，woollencloth，flax，linen，indigo，pig-iron，tin，copper，tallow，sugar，coffee，andsilk。I。1834-1843*

DateBullionReserveofBank£；MarketRateofDiscount*PriceincreasePriceDecreaseUnchanged1834，March19，104，00023/4%？nbsp；？nbsp；？

1835，March16，274，00033/4%771

1836，March17，918，00031/4%Ii31

1837，March14，077，0005%591

1838，March110，471，00023/4%411？

1839，Sept。12，684，0006%852

1840，June14，571，00043/4%591

1840，Dec。13，642，00053/4%762

1841，Dec。14，873，0005%32？

1842，Dec。110，603，00021/2%213？

1843，June111，566，00021/4%114？*Pricechangeson15majoritemsII。1844-1853*

DateBullionReserveofBank£；MarketRateofDiscountPriceIncreasePriceDecreaseUnchanged1844，March116，162，00021/4%？nbsp；？nbsp；？

1845，Dec113，237，00041/2%114-

1846，Sept。116，366，0003%78-

1847，Sept。19，140，0006%663

1850，March117，126，00021/2%591

1851，June113，705，0003%2112

1852，Sept。121，853，00013/4%951

1853，Dec。115，093，0005%14？nbsp；I*Pricechangeson15majoritemsHubbardcommentsinthisregard:”Asinthe10years1834-43，soin1844-53，movementsinthebullionoftheBankwereinvariablyaccompaniedbyadecreaseorincreaseintheloanablevalueofmoneyadvancedondiscount；

andthevariationsinthepricesofcommoditiesinthiscountryexhibitanentireindependenceoftheamountofcirculationasshowninthefluctuationsinbullionattheBankofEngland”(BankActsReport，1857，II，pp。290，291)。

Sincethedemandandsupplyofcommoditiesregulatetheirmarket-prices，itbecomesevidentherehowwrongOverstoneisinidentifyingthedemandforloanablemoney-capital(orratherthedeviationsofsupplytherefrom)，asexpressedbythediscountrate，withthedemandforactual”capital。”

Thecontentionthatcommodity-pricesareregulatedbyfluctuationsinthequantityofcurrencyisnowconcealedbythephrasethatdiscountratefluctuationsexpressfluctuationsinthedemandforactualmaterialcapital，asdistinctfrommoney-capital。WehaveseenthatbeforethesameCommitteebothNormanandOverstoneactuallycontendedthis，andthatthelatterespeciallywascompelledtoresorttoverylamesubterfuges，untilhewasfinallycornered(Chap。XXVI)。Itisindeedanoldhumbugthatchangesintheexistingquantityofgoldinaparticularcountrymustraiseorlowercommodity-priceswithinthiscountrybyincreasingOrdecreasingthequantityofthemediumofcirculation。Ifgoldisexported，then，accordingtothisCurrencyTheory，commodity-pricesmustriseinthecountryimportingthisgold，andtherebythevalueofexportsfromthegold-exportingcountryonthegold-importingcountry’smarket；ontheotherhand，thevalueofthegold-importingcountry’sexportswouldfallonthegold-exportingcountry’smarketwhileitwouldriseonthedomesticmarket，i。e。，thecountryreceivingthegold。But，infact，adecreaseinthequantityofgoldraisesonlytheinterestrate，whereasanincreaseinthequantityofgoldlowerstheinterestrate；andifnotforthefactthatthefluctuationsintheinterestrateenterintothedeterminationofcost-prices，orinthedeterminationofdemandandsupply，commoditypriceswouldbewhollyunaffectedbythem。

Inthesamereport，N。Alexander，headofalargefirmdoingbusinesswithIndia，expressesthefollowingviewsontheheavydrainofsilvertoIndiaandChinainthemid-fifties。ThiswaspartlyduetotheChineseCivilWar，whichcheckedthesaleofEnglishfabricsinChina，andpartlyduetothediseaseamongsilkwormsinEurope，whichsharplyreducedsilkwormbreedinginItalyandFrance:”4337。IsthedrainforChinaorforIndia？——YousendthesilvertoIndia，andyoubuyopiumwithagreatdealofit，allofwhichgoesontoChinatolaydownfundsforthepurchaseofthesilk；andthestateofthemarketsinIndia(inspiteoftheaccumulationofsilverthere)

makesitamoreprofitableinvestmentforthemerchanttolaydownsilverthantosendpiece-goodsorEnglishmanufactures。”——”4338。Inordertoobtainthesilver，hastherenotbeenagreatdrainfromFrance？——Yes，verylarge。”——”4344。InsteadofbringinginsilkfromFranceandItaly，wearesendingitthereinlargequantities，bothfromBengalandfromChina。”

Inotherwords，silver，themoneymetalofthatcontinent，wassenttoAsiainsteadofcommodities，notbecausecommodity-priceshadriseninthecountrywhichproducedthem(England)，butbecausepriceshadfallen，asaresultofover-importsinthecountrywhichimportedthem；andthisdespitethefactthatthesilverwasreceivedbyEnglandfromFranceandhadtobepaidforpartlyingold。AccordingtotheCurrencyTheory，pricesshouldhavefalleninEnglandandriseninIndiaandChinaasaresultofsuchimports。

Anotherillustration。BeforetheLords’Committee(C。D。1848/57)，Wylie，oneofthefirstLiverpoolmerchants，testifiesasfollows:——”1994。Atthecloseof1845therewasnotradethatwasmoreremunerating，andinwhichthereweresuchlargeprofits[thancottonspinning]。Thestockofcottonwaslargeandgood，usefulcottoncouldbeboughtat4d。perpound，andfromsuchcottongoodsecundamuletwistNo。40wasmadeatanexpensenotexceedingalikeamount，sayatacostof8d。perpoundinalltothespinner。Thisyarnwaslargelysoldandcon-tractedforinSeptemberandOctober1845at101/2and111/2d。

perpound，andinsomeinstancesthespinnersrealisedaprofitequaltothefirstcostofthecotton。”——”1996。Thetradecontinuedtoberemunerativeuntilthebeginningof1846。”——”2000。OnMarch3，1844，thestockofcotton[627，042bales]wasmorethandoublewhatitisthisday[onMarch3，1848，whenitwas301，070bales]andyetthepricethenwas11/4d。

perpounddearer。”[61/4d。asagainst5d。]——Atthesametimeyarn，goodsecundamuletwistNo。40，hadfallenfrom111/2-12d。

to91/2d。perlb。inOctober，andto73/4d。

attheendofDecember1847；yarnwassoldatthepurchasepriceofthecottonfromwhichithadbeenspun(ibid。，Nos。2021and2022)。

Thisshowstheself-interestofOverstone’ssagacityaccordingtowhichmoneyshouldbe”dear”becausecapitalis”scarce。”OnMarch3，1844，thebankinterestratestoodat3%；inOctoberandNovemberof1847itroseto8and9%，andwasstill4%onMarch3，1848。Thepricesofcottonweredepressedfarbelowthepricewhichcorrespondedtothestateofsupplybythecompletestoppageofsalesandthepanicwithitsensuinghighrateofinterest。Asaresult，therewasanenormousdecreaseinimportsin1848，ontheonehand，and，ontheother，adecreaseinproductioninAmerica；

henceanewriseincottonpricesin1849。AccordingtoOverstone，thecommoditiesweretoodearbecausetherewastoomuchmoneyinthecountry。”2002。Thelatedeclineintheconditionofthecottonmanufactoriesisnottobeascribedtothewantoftherawmaterial，asthepriceseemstohavebeenlower，thoughthestockoftherawmaterialisverymuchdiminished。”

HownicelyOverstoneconfusesprices，orthevalueofcommodities，withthevalueofmoney，thatis，theinterestrate。InhisreplytoQuestion2026，WyliesumsuphisgeneraljudgementoftheCurrencyTheory，basedonwhichCardwellandSirCharlesWood，inMay1847，”assertedthenecessityofcarryingouttheBankActof1844initsfullandentireintegrity。”——”Theseprinciplesseemedtometobeofanaturethatwouldgiveanartificialhighvaluetomoneyandanartificialandruinouslylowvaluetoallcommoditiesandproduce。”——Hesays，furthermore，concerningtheeffectsofthisBankActonbusinessingeneral:”Ashillsatfourmonths，whichistheregularcourseofdrafts，frommanufacturingtownsonmerchantsandbankersforthepurchaseofgoodsgoingtotheUnitedStates，couldnotbediscountedexceptatgreatsacrifices，theexecutionoforderswascheckedtoagreatextent，untilaftertheGovernmentLetterofOctober25(suspensionoftheBankAct)，whenthosefourmonths’billsbecamediscountable”

(2097)——Wesee，then，thatthesuspensionofthisBankActwasreceivedwithreliefintheprovincesaswell——”2102。LastOctober[1847]therewasscarcelyanAmericanbuyerpurchasinggoodsherewhodidnotatoncecurtailhisordersasmuchashepossiblycould；andwhenouradvicesofthedearnessofmoneyreachedAmerica，allfreshordersceased。”——”2134。

Cornandsugarwerespecial。Thecornmarketwasaffectedbytheprospectsoftheharvest，andsugarwasaffectedbytheimmensestocksandimports。”——”2463。OfourindebtednesstoAmerica……muchwasliquidatedbyforcedsalesofconsignedgoods，andIfearthatmuchwascancelledbythefailureshere。”——”2196。IfIrecollectrightly，70percentwaspaidonourStockExchangeinOctober1847。”

[Thecrisisof1837withitsprotractedaftermath，followedin1842

byaregularpost-crisis，andtheself-interestedblindnessofindustrialistsandmerchants，whoabsolutelyrefusedtoseeanyover-production——forsuchathingwasabsurdandimpossibleaccordingtovulgareconomy——hadultimatelyachievedthatconfusionofthoughtwhichenabledtheCurrencySchooltoputitsdogmaintopracticeonanationalscale。Thebanklegislationof1844and1845waspassed。

TheBankActof1844dividestheBankofEnglandintoanissuedepartmentandabankingdepartment。Theformerreceivessecurities——principallygovernmentobligations——amountingto14million，andtheentiremetalhoard，ofwhichnotmorethanone-quarteristoconsistofsilver，andissuesnotestothefullamountofthetotal。Insofarasthesenotesarenotinthehandsofthepublic，theyareheldinthebankingdepartmentand，togetherwiththesmallamountofcoinrequiredfordailyuse(aboutonemillion)，constituteitseverreadyreserve。Theissuedepartmentgivesthepublicgoldfornotesandnotesforgold；theremainingtransactionswiththepublicarecarriedonbythebankingdepartment。PrivatebanksinEnglandandWalesauthorisedin1844toissuetheirownnotesretainedthisprivilege，buttheirnoteissuewasfixed；ifoneofthesebanksceasestoissueitsownnotes，theBankofEnglandcanincreaseitsunbackednotesbytwo-thirdsofthequotathusmadeavailable；inthiswayitsissuewasincreasedby1892from£；14to£；161/2million(tobeexact，£；16，450，000)。