162

GOOD REMARKS OF THE

"TIMES."

repeat, which does nothing for commerce except prevent banking from coming to a stand-still. The movements of gold to or from the Bank may be important as tending to reveal forces which are acting upon trade, just as the foreign exchanges teach us whether England has bought more or less abroad than she has sold. But these movements as merely making the stock of gold in the Bank larger or smaller are not the power which makes discount cheap or dear. If they have this effect it is not from their own intrinsic action, but from the fictitious and absurd significance given to them by unscientific ignorance, and the absence of the ability to analyse facts, which is the basis of all knowledge. That the traders of England should, from utter helplessness of thinking and their consequent surrendering of themselves to all sorts of artificial dogmas, build up by their own act, against themselves, such rates as eight, ten, and twelve per cent., as we have lately seen, is a wonder at which I never cease to marvel.

"OXFORD, Nov. 14, 1873."

BONAMY PRICE."

The convulsion began in September with a reserve in the Bank of £13,238,000, and a rise in the rate of discount from 3 to 4 per cent. It culminated in November, when the reserve had fallen to £8,071,000-and the rate risen to 9 per cent. as the minimum, but when the majority of the loans granted by the bank had exacted a rate actually of 12 per cent. The ratio of reserve to

liabilities on September 24th was 44 per cent., on November 5, 36. Upon the doctrine of the City, a reserve of eight millions of stored-up gold, capable of paying off 36 per cent. of what the Bank owed, justified a blistering charge of nominally 9, really of 12 per cent. on the loans taken out by the trade of the nation from banks, and a crisis was averted by the news that gold had been put on board of ships on the other side of the Atlantic Ocean. What kind of conception of the action of currency, and the nature of banking, must those have had who found comfort in this preposterous belief? That corn should fall in price in a famished town when a fleet of corn ships is announced to be in the offing is intelligible; food to eat is at hand: but what can gold do when it comes?

Other causes than the amount of gold at the Bank, we may be quite sure,-causes arising out of the state of the wealth of the nation, out of the destruction of property, and the agonizing uncertainty by whom the loss would have to be borne-generated this violent commotion in the money market: but neither bankers nor traders think of these causes, and one result is the wanton imposition of a heavier charge for discount if some insignificant sum of gold has been withdrawn from the Bank. Thus the attention is called away from wealth itself to the machinery which transfers its ownership, and what constitutes sound and safe banking is made to depend on an empirical, unscientific and false rule.

164 THE LAW OF SUPPLY AND DEMAND.

If the cart only is thought of and not the goods contained in it, people must not be surprised if every kind of charge is made for cartage. What is happening to the two principals of every banker, whether the depositor has much or little remaining of what he has sold compared with what he has bought, and whether the borrower of the purchasing power which the bank derived from the depositor and transferred to him has preserved or consumed the wealth he bought with it, alone contain the secret of the money market, alone explain the events of the banking world.

Hence, as a rule, the banking market is governed by the universal law of supply and demand. Each of these forces may vary, with corresponding results on the price of the article dealt in, purchasing power. Trade may be steady for a long period, with regular movements and uniform growth; the rate of discount at such times will be moderate and little given to fluctuations. Or new and profitable fields for the application of capital, such as the rapid development of colonies, and the demand for capital, may increase much faster than capital itself; a high rate will be the consequence, and it will not be felt to be oppressive. Again, particular trades may have fallen under disturbing influences; a cotton famine may suddenly overtake Lancashire, or commotions in the labour market may interfere grievously with the condition of the iron and coal trades, or costly mining adventures may come to an abrupt end. In such cases, capital will

tend to be thrown out of employment; its field of action will be narrowed, and the charge for discount will look downward. Such are the general forces which rule the rate of interest at banks; but trade and its fluctuations, the action of political and social influences on the development of wealth, the likelihood of the increase or the diminution of profits, the probabilities of deposits becoming larger or smaller, in a word the whole field of capital, its employment, and the returns it promises to yield, are matters far too wide and too elaborate for the powers in the money market to study. It is easier, more ready at hand, to look at money, at gold, at the stock of it in banking vaults, at the amount of the circulation moving about the country, at the machinery which moves wealth, instead of wealth itself. Under the influence of such ideas fanciful and arbitrary rates of discount may be ever springing up. It is true these arbitrary dogmas about quantities of circulation, rising or falling reserves, exports or imports of gold, ratios of bullion to liabilities, are everlastingly refuted by the facts of the rate of discounts; but what matters it to bankers? they find a profit in such delusions. But that the great body of traders should tamely consent to be the victims of such empirical assertions, and of such unenquiring, unscientific literature-that they should run as greedily as bankers into these doctrines about gold, never dreaming of looking whether these dicta about gold correspond with fact—that they should be so pro

166

THE CURRENCY OF THE UNITED STATES.

foundly averse to study the nature and laws of trade, and be content to accept every kind of quack assertion of monetary oracles about the magical effects of gold being in one place instead of another, to their own infinite perplexity and the grievous injury of their fortunes, is indeed surprising. It is the intellectual mystery of the nineteenth century.-Populus vult decipi:-it must take the consequences.

In conclusion I desire to say a few words on the great problem as well as the great duty which lie on the people of the United States. They are suffering from an evil of enormous magnitude, which is entirely of their own. creation, and which it lies perfectly within their own power to remove. A permanently inconvertible currency science pronounces to be utterly destitute of justification. The continuance of such an indefensible practice in one of the most important branches of social administration would place that great nation on a level below the intellectual standard which it has won in the world. Were it to go on, their descendants hereafter would speak of the want of intelligence it would imply as the wonderful spot on the great reputation they had inherited. The suffering, moreover, which it inflicts on the people, the wanton corruption of one of the most important instruments of civilisation, the disorder which it thrusts upon all trade, the low level at which it tends to keep the knowledge of political economy throughout the