purchase of the same. They are payable by their terms in coin, that their holders, if they cannot by their direct exchange obtain that of which they are in search, may at once convert them into that form of merchandise, gold and silver, which have at all times the same value, and by means of which their holders are always certain, by direct exchange, to obtain that which they wish to acquire; or which they can safely hold, if they do not wish to convert them immediately into merchandise. The moment they are converted into gold and silver, their full value is treasured up for future use, placing their holder beyond all possible risk of loss. That the notes and credits of a Bank will not be received for merchandise at their nominal value, at all times, is evidence that they have been issued upon inadequate security, and that the safety of their holder requires their immediate conversion into coin.

As Banks guaranty the immediate convertibility of their issues into merchandise or into coin, possessing the means therefor either in their reserves in coin (which all Banks must maintain), or in the merchandise which the bills they have discounted represent, and which, whoever may have its possession, is to be esteemed a fund especially set apart for their payment, and consequently for the redemption of the notes and credits issued in their discount, they treat all such issues as the equivalent of coin; and charge the same rate of interest on loans made by their means, that they would charge on loans of an equal amount of coin. The borrowers are assumed to be producers; for only such are entitled to borrow at Bank by an issue of symbols, which anticipate to them the collection of the proceeds of merchandise which they have put upon the market. The interest they pay in the discount of the bills taken in its sale is charged to the purchasers, and is finally paid by consumers as a part of the cost of distribution. properly makes an element in price; as, without the symbols issued by the Banks, the cost of distribution, and with it, price, would be greatly increased, by the use of a metallic in place of a paper currency. Consumers in fact are the parties chiefly benefited by a symbolic currency, as the object and effect of all such currencies are to simplify and cheapen distribution. While Banks derive a profit from their circulation, they can derive one only so long as they conduct their operations prop

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erly, and in harmony with the general welfare; only so long as they issue instruments against merchandise actually in demand for consumption. The return to them of their notes and credits, automatically, is the proper test, and the only one, of competent management.

As the liabilities of a Bank are in ratio to the amount of its discounts, and as it must, for its own safety, maintain reserves to take in such of its liabilities as are not returned to it in the payment of its bills, it follows that as its reserves are drawn, it must reduce its discounts, in other words, its interest-bearing securities, in a far greater degree. If, for example, a Bank having reserves in coin equalling $1,000,000 could safely have a discount line of $5,000,000, it would, if its reserves were reduced to $500,000, have to reduce its discounts to $2,500,000. If its reserves were wholly drawn, the Bank would have to replenish them, or suspend operations altogether.

The preceding statement fully explains the effect of the addition to, or the withdrawal from the reserves of Banks, of a comparatively small amount of specie. In countries like Great Britain or the United States (the currency of the latter being on a specie basis), nearly all additions to their specie go immediately into the Banks, increasing their reserves in an equal degree. These immediately proceed to increase their issues, somewhat in like ratio. So long as they discount nothing but legitimate paper, their position may not be immediately compromised. All sudden additions of the means of expenditure, however, will necessarily lead to over-consumption, to wastefulness, and to enterprises in advance, or beyond the wants, of the community in which they are undertaken. On the other hand, the withdrawal of the reserves of Banks, provided such withdrawal be permanent, compels them to reduce their issues in five-fold ratio to the amount of such withdrawal, reducing the available means of the public in a like degree. Their operations are never in simple, but in far greater, ratio to the amount of specie they hold; hence, unless they are adequately managed, the movements of specie (which is always in a state of ebb and flow), are certain to keep the public in a condition of chronic excitement and agitation, from the constant variations in the amounts of paper money. At one time there will be a plethora of it; at another not a dollar is to be

had. Banks, therefore, which when properly conducted are most efficient agents in promoting the public welfare, are, when mismanaged, the greatest of curses. Those who conduct them should early learn the lesson not to hasten to increase their discounts, for the reason that they are in possession of an unusual amount of coin; nor to refuse them, whenever there is a slight decrease in their reserves. They ought always to bear in mind that such additions may be only temporary, and that loans made upon them may soon have to be taken in. They may also rest assured that so long as their loans are properly made, all coin that may be drawn from them is certain to be speedily returned by the necessary operations of the laws of trade.

The profits of a Bank are in the ratio that its interest-bearing securities exceed the capital required in its operations, and the cost of management. If a Bank, for example, with $1,000,000 of capital,- that is, with $1,000,000 of reserves in the form of coin, - discounts bills to the amount of $5,000,000, bearing interest at the rate of 6 per cent, it will be in receipt of an annual income of $300,000. Out of this it has to deduct interest on its reserves, say $60,000; expense of management, $70,000; losses averaging, say $50,000 annually, -the total being $180,000. The amount remaining for dividends in such a case would equal $120,000; or 12 per cent annually on the capital employed. The above figures are, of course, used only by way of illustration. It is certain, however, that the profits of well-conducted Banks exceed considerably the ordinary rates of interest. They deal with capital in its highest and most complete form, and their profits will always be in the same form.

It is often asked, "If the borrowers at a Bank pay interest on the whole amount of its loans, that is, on the whole amount of notes and credits issued, what is the advantage of such a currency over one of coin, of capital?" One advantage is the greater convenience of a paper over a metallic currency; a convenience often so great that, could a currency of coin be furnished without charge, borrowers would prefer a currency of symbols at the rates ordinarily paid for its use. A person having a remittance to make from New York to London always prefers a bill for this purpose, from the safety and economy of

its transmission over that of coin. In local currencies, symbols are preferable to coin in by far the greater number of transactions. Were gold and silver required to be present in all exchanges, the amount necessary therefor, provided the volume of such exchanges remained undiminished, would be more than ten-fold greater than that in the world. As they would rise in price from the increased demand, the stimulus given to their production would be so great as to increase their cost probably five-fold. As their value increased, the cost, risk, and inconvenience attending their use as currency would be so great that production and trade would be reduced somewhat in ratio to their increase in cost. With such increase in cost, the value of all articles made from them, whether of use or ornament, would increase in like ratio, with consequences most detrimental to the moral as well as the physical wellbeing of society; for the cultivation of the sense and love of beauty, to which the precious metals so largely minister, is among the most powerful means of promoting the well-being of the race.

No opinion or theory is more generally entertained than that the effect of symbolic currencies is to raise and sustain prices. Such an effect is constantly urged as the strongest argument in their favor.. If such were their effect, they would be the greatest of evils, instead of being, as they are, among the most beneficent agents in promoting the general welfare. Whatever reduces the cost of distribution must reduce prices, as competition is always certain to reduce the profits of production very nearly to the ordinary rates of interest. As prices are reduced, however, consumption increases; so that the aggregate amount of profits of a manufacturer, for example, may, for a time, be largely increased from increased production, the rate of profit remaining the same; or his aggregate profits may be largely increased, the rate being reduced, by the increased amount produced. He might be able to sell twenty-five per cent cheaper on an order for $100,000 of merchandise, than on one for $10,000. The commerce of such a country as the United States has resulted in a great measure from a reduction in the cost of distribution. Previous to the opening of the Erie Canal, the cost of transporting a ton of wheat from Buffalo to the city of New York equalled $100.

That article, consequently, throughout the greater portion of the Mississippi Valley, had no exportable value whatever. As the people living in it could not export their products, they could not purchase those of the eastern States. The construction of that great work at once opened a market to an immense area, enabling a farmer in central Ohio to sell his wheat at $1.00 the bushel, or at three times its former price. The canal, at the same time, so reduced the cost of transportation that he could purchase largely of the fabrics of the eastern States, which had, from cost of transportation of his products, been far beyond his reach. With the canal, he could sell at higher and buy at far lower rates. So with the eastern manufacturer. Previous to the opening of the canal, he had to pay $3.00 the bushel for wheat. That work reduced the price, to him, to $1.50. At the same time, from the reduced costs of transportation, new and extensive markets were opened for his products. He could sell a much greater amount than formerly; and probably, at the outset, at equal and perhaps better rates. Both farmer and manufacturer were thus mutually and equally benefited, but the benefit was mainly in the reduced prices at which each could purchase the products of the other. If the profits of each on the sale of their own products were increased, say ten per cent, in consequence of the reduction in the cost of transportation and of the markets opened by the canal, each would pay, say, fifty per cent less for what each purchased of the other. If in the end, the rate of their respective profits was not increased, each would make a very large saving at the reduced rate at which each would buy the products of the other. Canals and railroads supersede the old highways, for the reason that by their means merchandise can be the more cheaply and conveniently moved from producer to consumer. Symbolic currencies supersede metallic ones for reasons precisely similar. The question is the relative economy of the two. As the former reduce costs, they must reduce price. As cost, however, is reduced, increased consumption may for a time have the effect of increasing the rate of profits of the producer; but such effect can be only temporary, for competition, as already shown, will be certain in the end to reduce them very nearly to the ordinary rates of interest.