ference whatever, but in form, between notes and checks as currency. Each (except deposits made in coin) springs from similar transactions, the discount of bills. It always lies with the party in whose favor loans are made to say in what form he will avail himself of their proceeds, whether in the notes of a Bank, or in credits on its books to be transferred by checks, or to be drawn by means of them in notes or coin. As notes and credits in the form of deposits arise from similar transactions, and as they are convertible the one into the other, and each equally into coin, at the pleasure of the holder or owner, the absolute identity of the two, in principle, is a matter of demonstration, for "two things that equal a third equal each other." Writers, however, upon the subject of currency have without exception, I believe, made a radical distinction between notes and checks. Such a distinction, although utterly and wholly fanciful, has been one of the chief reasons why so little progress has been made in taking the subject of money out of the category of dialectics, and out of the methods of Schoolmen, and in subjecting it to that process of scientific analysis, without which it is impossible that any considerable progress in its solution should be made.

All modern Banks, therefore, are equally Banks of circulation whatever the form in which their loans are made. The tendency of checks to supersede notes arises simply from the greater convenience and safety of their use. They not only avoid the possibility of loss, but they are often of great value in serving as records of the character or nature of the transactions in which they are used.

It has already been shown that division of labor is not only the condition of all accumulations worthy of the name, but of all excellence in the articles produced. Not only may a single article pass through a dozen different hands before it is fitted for the market, but it may pass through as many more after it has received its final touch, before it reaches the consumer. Division of labor, consequently, is just as important, and may be carried to an equal extent, in distribution as in production. It is not for the interest of the producer or of the public, that he should attempt the distribution of his products. All his capital and all his attention and skill should be devoted to two objects, economy of production and excellence in quality. He cannot

go in search of the consumers, or of those who purchase for the retail trade; nor can he spare the time necessary to ascertain their means or wants. All such matters are properly left to another class to merchants - who have functions in distribution as distinct and important as are those of the manufacturer in production. The latter, producing perhaps only one article, if he undertook its distribution might have to wait days or weeks before he could find a party in want of it. Such operations would be simply barter. The merchant, on the other hand, has the goods of all producers in his stock, and can supply the want of all applicants. He is in position to know their wants, and can keep producers equally informed with himself. But for the merchant, who by his purchases notifies them of the condition of the markets, of the styles and kinds of goods in demand, producers would be without any adequate guide whatever, and by an unwise direction of their industries might wholly ruin themselves in the course of a very few days or weeks. So, wholesale merchants sell very largely through brokers, who look up customers, and ascertain their wants and means. The greater the division of labor in distribution, the more economically is it accomplished. The amount saved is so much deducted from the price to be paid by consumers, who reap nearly all the advantages resulting from decreased cost either of production or distribution.

As all banking currencies are instruments arising out of, or in, the sale and distribution to consumers of merchandise it may happen that several sets of symbols issued against the same merchandise may be in existence at the same time. Suppose the bills of a New York merchant, given in the purchase of 1,000 bales of cotton, to be discounted by the issue of currency equal to its value. The merchant may presently sell the same cotton, taking the bills of a manufacturer therefor. These he may procure to be discounted. In this way, a currency may be created equalling twice or thrice the value of the merchandise upon which it is based. In such cases, however, only an amount of the currency equalling the value of the cotton first sold will, as a rule, enter into circulation. The first seller, the producer, may draw from the Bank which discounted the bills given for his crop the whole amount of their proceeds. The merchant who procured the discount of the second set of bills

will, as a rule, hold their proceeds on deposit to meet the bills given by him. The deposits growing out of such bills do not become currency, nor do they act upon prices unless the Bank makes loans upon them in the manner described. In periods of great confidence, or when a speculative feeling prevails, deposits, no matter how they may have arisen, may be loaned upon to an extent to create an excess of currency, that is, a currency which has no adequate constituent, a currency that is duplicated upon the same merchandise. The temptations to make loans upon deposits, which may not represent loanable capital, is a sufficient reason why Banks should never allow interest upon them. If interest be allowed, loans must be

made upon them to save Banks from loss. If they do not represent loanable capital, such loans inflate the currency in an equal degree, for which in the end the Banks must pay the appropriate penalty, in the loss, as will hereafter be shown, of a corresponding amount of their reserves.

A wide distinction is always to be made between capitalists and parties engaged in the active operations of production and trade. The former seek to part with to invest their capital for the income or interest it will yield. The latter must always have their capital in hand for the prosecution of their various avocations. To part with it is to give up business altogether. In this respect Banks, bankers, manufacturers, and merchants, in fact all engaged in production and distribution, are similarly placed. Each has his proper function or department in the great co-partnership which embraces every employment and every pursuit. The capital which each is required to possess is that necessary to carry forward his particular business or calling, and to meet the losses likely to be incurred. A commission merchant, although he may become responsible for all the merchandise passing through his hands, has only a qualified interest in it. He may with a capital of $100,000 be turning merchandise and incurring liabilities to the amount of $1,000,000, or ten times greater than his whole means. There is no more propriety in his paying cash for the merchandise he distributes, than that the railroad should own the merchandise it transports. All that is required of either, by way of capital, is an amount necessary to carry on their operations including the losses they may suffer. The means for the pay

ment by the merchant of his bills, or the greater part of them, must be provided by the sale of the merchandise for which they were given. So with Banks. They deal in bills given for merchandise, not by paying out their capital, but by issuing their own obligations. Their capitals are the reserves which are always to be held to meet losses and extraordinary calls, and are never to be permanently parted with. If made the basis of loans, they would have to discharge the notes and credits that were issued against them. If they are drawn to any considerable extent, their loss must immediately be made good, or the Banks must reduce their operations so that there may be a proper relation between their liabilities and their cash means. Every person and every institution engaged in production and distribution seek not only to retain their capital but to increase it to the utmost extent, as they can enlarge their operations, not in simple but in geometric ratio, to the means they possess,-increasing their profits in like ratio; for their profits are not so much made upon the capital they may own, as upon the whole volume of their transactions. It will be observed that while the reserves of Banks must be in the form of coin, the reserves of the public may be in the currency issued by them. As the former undertake to supply currency, they must supply it in whatever form it may be required.

Although a Bank must always maintain reserves in coin bearing a certain ratio to its liabilities, it may commence operations with its capital paid in almost wholly in bills. It is usually so paid, or in checks upon other Banks. The merchandise represented by the new bills discounted would give full employment to the notes and credits that might be issued, while the payment which could be demanded, in coin, of those which constituted its capital, would supply all the reserves that might be required. The amount collected for this purpose might be all the capital, in the form of coin or merchandise, ever in its actual possession, till its affairs were wound up. In such case, its whole capital might be returned to it in coin. Its capital represented by its bills, less the amount collected in coin to serve as reserves, would remain in the hands of its borrowers, and at interest, pending and after its organization, as before. As the possession of capital is always assumed to

carry with it an obligation to pay interest, every person and every institution, Banks especially, always seek to hold as little as possible, in order to have as much out at interest as possible.

As the capital of a Bank, less its reserves, would always remain in the hands of the public, it would be constantly moving from one producer to another, and be constantly taking new forms. Suppose a bill, which made up a portion of its capital, to represent 1,000 barrels of flour. The notes and credits issued against it, which in this instance would be the discount by the Bank of its own bill, might be used in the purchase, for consumption, of this flour, which would speedily reappear in other forms of merchandise-say cotton goods—which would soon be represented by bills, to be discounted in manner described, their constituent to reappear, like the flour, in some other form. In this way, the capital of the Banks represented by bills is constantly employed in the various industrial operations of the community, and is constantly changing hands and taking new forms. Its return to the Banks in the form of coin - and it must be returned in this form, if at all would be evidence of such a cessation of demand for merchandise, or such a disturbance of industries, that it could not be profitably employed,—that borrowers could no longer afford to pay interest for its use.

Currency, in whatever form, is the instrument of expenditure. The degree of the latter, as a rule, is always in ratio to the amount of the former. From the credit attached, and very properly, to currencies, they are usually received, on their issue, at their nominal value in coin. So far, however, as they were not symbolic,- that is, so far as they did not represent merchandise, the instruments of expenditure would be in excess of the means, and an inflation of prices would be the necessary result. If, for example, the products of a community entering constantly into consumption equalled $50,000,000, and if such products were represented by an issue of notes and credits of currency to an equal amount, business would remain, as far as the currency was concerned, in a normal and healthy condition. The reserves in coin maintained in such case would equal, say, $10,000,000. Suppose the Banks to increase their loans and issues to $60,000,000 by discounting, in addition to bills rep