half of those of the incorporated companies in London alone.

To illustrate this, I will refer to one example, not a selected one, but the only one that I happen to have at hand.

The Bank of London, with a capital of £300,000, has liabilities to the amount of £1,599,140. Cash in hand and on call of £202,856, or about 12.69 per cent on the liabilities.

If the banks in London have aggregate liabilities equal to those of the Bank of England, and specie reserves proportionate to those here cited, which, I repeat, is not a selected example, it is manifest that an amount of coin equal to one fourth of the liabil ities is found sufficient to sustain the business of London.

It will be observed that the liabilities of the Bank of London exceed five times, and those of the Bank of England three times, the capital,—while in Massachusetts they are practically restricted to an amount not exceeding the capital (all excess beyond this being necessarily in coin). Now as the capital is in effect a safety fund for the creditors, it is obvious that the creditors of a bank in Boston have a much greater guaranty from eventual loss, under the existing laws, than have those of the Bank of England. And this would be true, even if they had no specie reserves whatsoever.

3

I have endeavored to meet, and, I trust, succeeded in meeting, Mr. Hooper's argument on this first point with entire candor. I have not, knowingly, omitted to give full force to every point that he has assumed.

Every man is con

I now pass to the second theory on which I designed to comment, to wit, that "the deposits, as well as the circulation, of banks, are mainly created by the banks themselves," - an opinion on which the author evidently lays great stress, and to which he assigns a prominent place in his Preface. This opinion certainly needs proof. For, first, as to circulation. scious to himself of keeping no more money about him than is required by his daily wants, or, if he is a retailer, by the daily necessities of his trade; the whole circulation, certainly all that portion of it on which the banks would venture to discount, is made up of the aggregate of the sums so retained. It is difficult to see how any action of the banks can induce any man to increase, materially, the sum which he chooses, or is obliged, thus to keep in his possession.

The same reasoning applies to the deposits. Every individual, every firm or corporation, keeps habitually a certain deposit, proportioned to the daily requisitions of his or their business, which is not allowed greatly to increase.

Discounts are ob

tained to meet accruing liabilities, and to such they are immediately applied. When money is scarce, the deposits usually increase a little, because prudent men prefer losing a few day's interest to incurring the slightest risk of being unable to meet their liabilities. Here again it is not easy to see how any action of the banks can materially increase the sum of these deposits.

These truths are very elementary; and I should deem it almost impertinent to insist upon them, were it not for the gravity with which the contrary is urged as the result of experience:

"One of the apparent mysteries of banking," says Mr. Hooper (p. 14), "that is not generally understood, is, that the deposits and circulation usually increase or diminish as the loans of the banks increase or diminish."

This is another curious substitution of cause for effect. There is no need of resorting to mystery or paradox.

"Nec deus intersit, nisi dignus vindice nodus

Inciderit."

Let us reverse the statement. The loans of the banks usually increase or diminish as the deposits and circulation increase or diminish. This is simple and intelligible; neither mystical nor paradoxical; and every bank manager knows that it is the true order of events.

Again, "It is thus apparent that the deposits, as well as the circulation, are mainly created by the banks." (p. 16.)

And yet again, "The deposits and the circulation are mainly the result of their loans, and their specie is the basis on which their ability to loan rests." (p. 17.)

Passing over the looseness of this last assertion, in which the capital as a basis of the loans is entirely ignored (for I have no desire to avail myself of accidental inaccuracies), let us see how far experience bears out this theory.

The unanimous assurance of all the country bankers examined before successive Parliamentary committees is, in the words of one of them, Mr. Fullarton: "The amount of their issues is exclusively regulated by the extent of local dealing and expenditure in their respective districts, fluctuating with the fluctuations of production and price; and they neither can increase their issues beyond the limits which the range of such dealing and expenditure prescribes, nor diminish them, but at an almost equal certainty of the vacancy being filled up from some other source."

To the same effect Mr. Tooke, in his pamphlet on the Currency Principle (p. 122), says, "that it is not in the power of banks of issue, including the Bank of England, to make any direct addition to the

amount of notes circulating in their respective districts, however disposed they may be to do so."

Professor Bowen, Principles of Political Economy (p. 353), says, "The amount of the deposits depends upon the number of the customers of the bank, and upon the nature and extent of their business;" and again, "The excess of the circulation over the specie reserve, though generally supposed to be variable, is in truth as much a fixed quantity as either of the others."

Very much to the same effect is the statement of Mr. Latham, deputy-governor of the Bank of England, in a passage quoted by Mr. Hooper (p. 43), although, apparently, without appreciating its import:

"If there were no Bank of England, or no banks at all, no gold and no silver, -for these are mere ripples on the surface, — the great stream of interchange might still roll on, the same relations between borrower and lender might still exist, and the issue of their transactions be not very different from what it is under the present artificial and greatly overrated arrangements."

Surely, if the business of the country would be not very different did no banks exist, it cannot be in the power of those institutions, at their mere will and pleasure, materially to regulate the amount of that business.