of the speculation at which the tide shows signs of turning, and the dealers generally are rather thinking of the means of fulfilling their existing engagements, than meditating an extension of them; while the quantity of bills in existence is largely increased from the very commencement of the speculations.*

$ 6. It is well known that of late years, an artificial limitation of the issue of bank notes has been regarded by many political economists, and by a great portion of the public, as an expedient of supreme efficacy for preventing, and when it cannot prevent, for moderating, the fever of speculation; and this opinion received the recognition and sanction of the legislature by the Currency Act of 1844. At the point, however, which our inquiries have reached, although we have conceded to bank notes a greater power over prices, than is possessed by bills or book credits, we have not found reason to think that this superior efficacy

The most approved estimate is that of Mr. Leatham, grounded on the official returns of bill stamps issued. The following are the results :—

"Mr. Leatham," says Mr. Tooke, "gives the process by which, upon the data furnished by the returns of stamps, he arrives at these results; and I am disposed to think that they are as near an approximation to the truth, as the nature of the materials admits of arriving at."—Inquiry into the Currency Principle, p. 26.

has much share in producing the rise of prices which accompanies a period of speculation, nor consequently that any restraint applied to this one instrument, can be efficacious to the degree which is often supposed, in moderating either that rise, or the recoil which follows it. We shall be still less inclined to think so, when we consider that there is a fourth form of credit transactions, by checks on bankers, and transfers in a banker's books, which is exactly parallel in every respect to bank notes, giving equal facilities to an extension of credit, and capable of acting on prices quite as powerfully. In the words of Mr. Fullarton,* "there is not a single object at present attained through the agency of Bank of England notes, which might not be as effectually accomplished by each individual keeping an account with the bank, and transacting all his payments of five pounds and upwards by check." A bank, instead of lending its notes to a merchant or dealer, might open an account with him, and credit the account with the sum it had agreed to advance; on an understanding that he should not draw out that sum in any other mode than by drawing checks against it in favor of those to whom he had occasion to make payments. These checks might possibly even pass from hand to hand like bank notes; more commonly, however, the receiver would pay them into the hands of his own banker, and when he wanted the money, would draw a fresh check against it; and hence an objector may suggest, that as the original check would very soon be presented for payment, when it must be paid either in notes or in coin, notes or coin to an equal amount must be provided as the ultimate means of liquidation. It is not so, however. The person to whom the check is transferred, may perhaps deal with the same banker, and the check may return to the very bank on which it was drawn; this is

* On the Regulation of Currencies, p. 41.

very often the case in country districts; if so, no payment will be called for, but a simple transfer in the banker's books will settle the transaction. If the check is paid into a different bank, it will not be presented for payment, but liquidated by set-off against other checks; and in a state of circumstances favorable to a general extension of banking credits, a banker who has granted more credit, and has therefore more checks drawn on him, will also have more checks on other bankers paid to him, and will only have to provide notes or cash for the payment of balances; for which purpose the ordinary reserve of prudent bankers, one third of their liabilities, will abundantly suffice. Now, if he had granted the extension of credit by means of an issue of his own notes, he must equally have retained in coin the usual reserve; so that he can, as Mr. Fullarton says, give every facility of credit by what may be termed a check circulation, which he could give by a note circulation.

This extension of credit by entries in a banker's books, has all that superior efficiency in acting on prices, which we ascribed to an extension by means of bank notes. As a bank note of £20, paid to any one, gives him £20 of purchasing-power based on credit, over and above whatever credit he had of his own, so does a check paid to him do the same; for, although he may make no purchase with the check itself, he deposits it with his banker, and can draw against it. As this act of drawing a check against another which has been exchanged and cancelled, can be repeated as often as a purchase with a bank note, it effects the same increase of purchasing power. The original loan, or credit given by the banker to his customer, is potentially multiplied as a means of purchase, in the hands of the successive persons to whom portions of the credit are paid away, just as the purchasing power of a bank note is multiplied by the number of persons through whose hands it passes before it is returned to the issuer.

These considerations abate very much from the importance of any effect which can be produced in allaying the vicissitudes of commerce, by so superficial a contrivance as the one so much relied on of late, the restriction of the issue of bank notes by an artificial rule. An examination of all the consequences of that restriction, and a full estimate of the reasons for and against it, must be deferred until we have treated of the foreign exchanges, and the international movements of bullion. At present we are only concerned with the general theory of prices, of which the different influence of different kinds of credit is an essential part.

7. Some high authorities have claimed for bank notes, as compared with other modes of credit, a greater distinction in respect to influence on price than we have seen reason to allow; a difference, not in degree, but in kind. They ground this distinction on the fact, that bank notes have the property, in common with metallic money, of finally closing the transactions in which they are employed; while no other mode of paying one debt by transferring another, has that privilege, but, on the contrary, all bills and checks, as well as all book-debts, are from the first intended to be, and actually are, ultimately liquidated either in coin or in notes. The bank notes in circulation, jointly with the coin, are therefore, according to these authorities, the basis on which all the other expedients of credit rest; and in proportion to the basis will be the superstructure; insomuch. that the quantity of bank notes determines that of all the other forms of credit. If bank notes are multiplied, there will, they seem to think, be more bills, more payments by check, and, I presume, more book credits; and, by regulating and limiting the issue of bank notes, they think that all other forms of credit are, by an indirect consequence, brought under a similar limitation. I believe I have stated

the opinion of these authorities correctly, though I have no where seen the grounds of it set forth with such distinctness as to make me feel quite certain that I understand them. I can see no reason for the doctrine, that according as there are more or fewer bank notes, there will be more or less of other descriptions of credit. If indeed we begin by assuming, as I suspect is tacitly done, that prices are regulated by coin and bank notes, the proposition maintained will certainly follow; for, according as prices are higher or lower, the same purchases will give rise to bills, checks, and bookcredits of a larger or smaller amount. But the premiss in this reasoning is the very proposition to be proved. Setting this assumption aside, I know not how the conclusion can be substantiated. The credit given to any one by those with whom he deals, does not depend on the quantity of bank notes or coin in circulation at the time, but on their opinion of his solvency; if any consideration of a more general character enters into their calculation, it is only in a time of pressure on the loan market, when they are not certain of being themselves able to obtain the credit on which they have been accustomed to rely; and even then, what they look to is the general state of the loan market, and not (preconceived theory apart) the amount of bank notes. So far, as to the willingness to give credit. And the willingness of any one to use his credit, depends on his expectations of gain, that is, on his opinion of the probable future price of his commodity; an opinion grounded either on the rise or fall already going on, or on his prospective judgment respecting the supply and the rate of consumption. When a dealer extends his purchases beyond his immediate means of payment, engaging to pay at a specified time, he does so in the expectation either that the transaction will have terminated favorably before that time arrives, or that he shall then be in possession of sufficient funds from the proceeds of his other transactions. The