resenting merchandise, accommodation bills to the amount of $10,000,000. The excess of issue, if confidence were felt in it, would be as readily accepted by the parties to whom it might be paid, and by the holders of merchandise, as that which was symbolic. As there would in the mean time be no corresponding increase of merchandise, prices would rise in ratio to the increase of the instruments of expenditure. That already produced, the proper subjects of consumption and which would have sufficed for five months, will now suffice for only four. To meet the increased demand, additional importations would be made, and an unhealthy stimulus given to production of all kinds. New schemes would be set on foot involving large outlays, but being uncalled for by any permanent ability to consume their products, would rest upon no solid foundation; while extravagance and thriftlessness would be encouraged just in ratio as the instruments of expenditure were to be had without labor, or without any adequate consideration being given therefor.

For a time, every thing would wear the appearance of great prosperity. All who might happen to have merchandise would, by its rise, become suddenly rich. But when the accommodation bills matured, their makers would have nothing to pay with. These were made, not in the purchase of merchandise for its distribution to consumers, but for the purpose of supplying it to their makers for consumption. The holders of that which had been produced would, from its rise in price, come into possession of the whole or the greater part of the currency which had been issued upon accommodation, as well as upon commercial bills. Upon the maturity of their own they would, consequently, be creditors of the Banks to the amount of $10,000,000 of notes and credits in excess of the sums due on their bills, that is, to the whole amount issued on the accommodation paper, and would draw the amount in coin, as balances due them. If the Banks, in discounting the accommodation bills, had increased their reserves in ratio of one of coin to five of liabilities, they would, after the notes and credits issued in discounting such paper had been taken in, have only $2,000,000 of coin reserves left. In such case, they would be compelled to reduce the line of their discounts to $10,000,000; or they would have to provide new reserves to the amount of $8,000,000 in order to supply to the public its accustomed

amount of currency. Till these were provided, they could not make loans exceeding $10,000,000 in amount (their reserves being only $2,000,000), in place of the $60,000,000 in circulation previous to the taking in of the notes and credits issued in the discount of the accommodation bills. For a time, therefore, the community would be almost wholly without the instruments or means for effecting their exchanges. Production and trade would be brought instantly to a complete stand-still. No debts of any kind could be paid. In the excitement and panic that would be certain to follow, a run would be immediately made upon the Banks for the $2,000,000 of reserves still remaining in their vaults. Their immediate suspension would be the necessary result.

The condition of affairs, in the case supposed, would be greatly aggravated for the reason that, with the increase of currency from $50,000,000 to $60,000,000, prices would not only have been greatly inflated, but production greatly stimulated at a correspondingly high cost. When the reverse came, those who had conducted their operations in the most careful manner, if they had continued them at all, would be as fatally involved as the most improvident and reckless. Merchandise which had been produced at even ordinary rates could not be sold at any price; so that the bills of the Bank, which were considered as perfectly safe and legitimate when taken, would be almost as valueless as the accommodation bills, the discount of which had produced all the ruin and bankruptcy described.

It may be asked, "Will not the parties who, in the case supposed, drew the reserves of the Banks on notes and credits. issued in the discount of accommodation bills, and who received them in the advanced prices charged for their merchandise, deposit them in the Banks to serve as additional reserves in their operations; and if so, why may not the Banks keep up their usual line of discounts of good paper?" The answer is obvious: the stimulus given to consumption due to the increase of currency on accommodation bills will have caused a large increase of consumption of foreign goods which will have to be paid for in coin. So far, the specie drawn would go out of the country. Such portion of it as had been drawn and retained in the Banks would be used by the depositors as reserves for their own operations, which would always be in

creased in ratio to the increase of their means. These reserves would, at all times, be subject to their necessities; they might be wholly drawn at any moment. In such case the Banks would find themselves in the dilemma already described. Every institution and every person engaged in business, must maintain reserves in ratio to the magnitude of their operations. They are to make good their own losses. Those of one party should never be held to make up for those of another. If reserves are lost from any cause, they must be made good, either out of fresh capital, or by reducing liabilities, so that the proper ratio may be preserved.

An inflation and contraction precisely similar, with similar results, would as necessarily follow the discount of bills given in the purchase of real estate as of accommodation paper. Purchases made in this manner would be in a great measure speculative, both on the part of buyer and seller. A seller who wanted to reinvest his means in property similar to that sold would never take bills therefor, leaving the title of the property sold in the possession of the purchaser. Should the bills given as the purchase money be discounted, the proceeds would, as a rule be used to meet the personal expenditures of the seller; or he would enter upon, or would lend them to a party entering upon, some enterprise in which they would be speedily paid out for material and labor. In such case, there would be a corresponding inflation in prices from a corresponding increase of the instruments over the means of expenditure. In order that the bills might be paid, the property for which they were given would have to be sold previous to their maturity. Bills given for merchandise are paid because the consumption of that which they represent is absolutely necessary to sustain life, and must consequently be taken and paid for before they will mature. Real estate, on the other hand cannot, like merchandise, be eaten, drunk, nor worn; nor is its ownership at all necessary to its use. As it cannot be consumed, its sale never can be forced without danger of excessive loss. This depends upon laws wholly different from those which govern sales of personal property. Real property may be active, as the phrase is; or months or years may elapse before that for which the bills discounted were given could be sold without involving a heavy loss.

Merchandise in demand for consumption, on the contrary, can always be moved, in almost unlimited quantities, by a slight concession in price. Capitalists will be always ready to purchase, if they can by so doing make a commission or profit on the operation only slightly exceeding the usual rates of interest, well knowing that consumption will speedily take it off their hands. Sales of real estate, on the other hand, depend upon so many contingencies, that the manager of a Bank who should discount bills given for it, leaving the property they represented in the hands of the purchaser; or in fact should discount them, taking a mortgage on the property for which they were given, would be esteemed as fit only for the madhouse.

But even if the bills given in the purchase of such kind of property were paid, their discount would, as a rule, involve the same losses, and in the end, to the same parties, as if they were not. The same inflation, with the same advance in prices, would be the result, with a corresponding excess of expenditure, and production at a correspondingly high cost. Their payment would contract the currency in an equal degree. The discount of similar bills. might postpone such contraction; but the time would speedily come when the holders of real property would either refuse to sell at any price, taking bills in payment; or the Banks would refuse to discount bills given for it for fear that, the fact becoming known, their credit would be so far impaired that the notes and credits issued by them would be immediately demanded in coin, instead of being held and used as currency. As soon as they ceased to discount such bills the currency would be permanently contracted in an equal degree, with all the consequences which have been described. With a fall of prices, bills given for merchandise could not be paid. A still further contraction would be the result. In this way, contraction might follow contraction till the operations of production and trade became involved in almost hopeless embarrassment. It is notorious that speculations in real estate have been among the most potent causes of those financial revulsions which periodically sweep over such countries as the United States, where the greatest inducements always exist to engage in such operations, from the constant.appreciation in value of such property from the rapid increase of the country in population and wealth.

Similar remarks apply with almost equal force to the discount of bills given in the purchase of securities, such as bonds of government, or of corporate bodies of one kind or another. Such securities, like real property, can be neither eaten, drunk, nor worn. A currency issued on bills given in their discount could, as a rule, be returned to the Banks by their makers only by the sale, before their maturity, of the securities for which they were given. In this, as in all other cases, that which is symbolized must discharge the symbol, or must be used for its discharge. If it could not be sold, the bills would not be paid. If sold at a loss, the Bank would have to bear the loss, even if the proceeds of the sale were paid over to it. If not paid, the currency which had been inflated in their discount would be contracted to an equal degree. If paid, either no similar bills would be made, for it is hardly possible that any one possessed of securities would sell them at their market value, taking in payment bills of purchasers, or the Bank would soon come to its senses, and refuse wholly to discount such bills. If no new ones of the kind were made, the currency after having been inflated would be contracted in an equal degree, with all the consequences that have been described, greater or less in severity according to the amount of illegitimate paper discounted.

From what has preceded, the reason of the failure of all Banks, the capital or reserves of which have consisted of real estate or securities, will have been made sufficiently evident. All currencies, to be accepted as such, must be instruments representing and serving for the distribution of merchandise. If they will not secure to their holder merchandise, the equivalent in value of coin, they will always be immediately drawn, or attempted to be drawn, in coin. The holder of a note issued by a real-estate Bank does not want that which it represents, but merchandise, or, in the absence of merchandise, coin. Such a Bank has neither. Should it seek to discount nothing but business paper, an impossible supposition (for all such Banks are got up to supply the lack of business paper, — that is, of merchandise, the basis of business paper), no one would take its notes and credits to any considerable extent, as it would be seen by all that no proper provision had been made to carry forward its operations, or to meet the losses to which it would be subjected. Such Banks, therefore, from the very nature of