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As already remarked, the notes and credits of a Bank, so long as they represented merchandise, would serve as the instruments of its distribution, and would return to it, automatically, in the payment of its bills. So long, consequently, would its reserves remain intact in its vaults. It would, however, from the importunities of borrowers, or from want of proper caution in making its loans, be constantly liable to discount bills which either did not represent merchandise, or which did not represent such as was in demand for consumption. To an equal extent it would have to pay out, in the redemption of its notes and credits, a corresponding amount of coin. It would not unfrequently turn out that bills apparently the most legitimate would not be paid from causes which could not have been foreseen, or which could not have been avoided. It is to meet such contingencies or unforeseen calls that every Bank must, as already shown, retain reserves in coin; and in value, it is here assumed, equal at least to twenty per cent of its liabilities: that is, with $5,000,000 of notes and credits outstanding, it should maintain in its vaults at least $1,000,000 in coin. This coin, in fact, is the fund or capital which is to guaranty its undertaking that all its issues shall have a function or value equal to that of coin. They would have, as already shown, an equal value, provided the bills, in the discount of which they were issued, represented merchandise entering into consumption, and having a value in coin equal to their nominal amount. So long as they represented such values, there would be no adequate motive to draw them in coin. So far as they did not represent such merchandise, they would be speedily drawn in coin. Suppose a Bank, with reserves in coin of $1,000,000, to discount ninety-day bills given for merchandise to the amount of $5,000,000; and, thereafter, to discount additional bills having three years to run, to the amount of $1,000,000: all the notes and credits issued would be returned to it at the same time. Those issued in the discount of the bills given for merchandise, would be returned to it in their payment. To take in the notes and credits

at any one time are wholly retired within periods of four months, the whole amount of currency afloat is wholly retired three times each year, its place being supplied by new issues in the discount of new Bills. Both Bills and currency are simply a record of the movement of merchandise, and are retired by its consumption.

issued in the discount of the three-year bills, the Bank would have to pay out a corresponding amount of specie; that is, the whole of its reserves, its cash capital. Its means or assets would then consist of bills having two years and nine months to run. Such bills might be valuable, and by their conversion into coin might, in the end, provide new reserves; but till they were provided from such, or from some other source, the Bank would have to suspend operations altogether; for the moment it was understood that it was without reserves or means to make good the losses which it was likely to sustain, no one would exchange good bills for its notes and credits. It would be regarded as in the light of a merchant, who not only required credit for the goods purchased, but for his rents, and for the ordinary expenses incurred by him in the prosecution of his business.

The bills of a Bank, so long as they represent merchandise having a value in coin equal to their nominal amount, will not only return to it the notes and credits issued in their discount, but they will provide for the return to it of such portion of its reserves as may, from whatever cause, have been drawn. If they equalled $1,000,000, and one half be drawn on an equal amount of notes and credits, an equal amount of its bills, for the want of a corresponding amount of currency, would have to be paid in coin. A Bank, however, as a rule, has nothing to fear so long as the makers of its bills are solvent. Of course, I am not speaking of periods in which confidence is so far shaken that the holders of the notes and credits demand the specie for their own real or fancied security. In such case, the Bank must suspend; as its own liabilities are payable on demand, while the greater part of those of the public to it are payable at a future day. A Bank, to be always prepared to take in instantly all its liabilities, would be compelled to maintain on hand, at all times, coin equal to their whole amount. In such case, no motive would exist for its organization, and no provision would be made for the distribution of merchandise by any currency but one of coin. No provision can be made by a Bank of issue for the instant discharge of all its liabilities; and there is no necessity for such provision, so long as it conducts its business properly, that is, so long as its bills represent that kind of merchandise which will give proper employment, in its distribution, to the currency it issues.

Such merchandise must be reached and utilized by means of a currency of some kind; and one of notes and credits will be preferred for this purpose, so long as it will secure to their holders the same amount of merchandise as an equal amount of a currency of coin.

As a rule, therefore, a Bank has little to fear from the withdrawal of its reserves, so long as its bills represent an adequate value of merchandise. It can, however, never be sufficiently informed upon this point. In case of a demand for coin, it should, as a matter of precaution, immediately reduce its line of discounts. The payment of its bills, which must continue, would not only take in its liabilities, but would contract the volume of currency to an equal degree. Money would at once be in active demand; rates of interest would be advanced; illegitimate operations of all kinds would be checked: and, if the latter were the cause of demand for specie, the proper remedy would be immediately applied, and the currency rendered so far symbolic that an excessive demand for coin would soon cease. A return flow would be certain to set in, and would soon bring back to the Bank all the specie drawn from it, and perhaps a much larger amount from the liquidations resulting from the disturbances which had been created.

For a considerable time after Banks were established, the currency issued by them consisted chiefly of their notes, for the reason that borrowers, kept their money in their own strong boxes, in their places of business. As the inconvenience and risk of loss attending the use and care of notes would be similar in kind, if not equal in degree, to that attending the use and care of coin, borrowers, for their greater convenience and safety, would gradually come into the habit of leaving undrawn and on deposit, such portions of their loans as were not required for immediate use. Other parties coming into possession of notes beyond their immediate wants would, for similar reasons, deposit them in Bank, to be drawn or transferred at pleasure by checks. The Banks in this way would not only become the holders of reserves of parties engaged in industrial operations, (for the latter must, equally with Banks, maintain reserves bearing a certain ratio to their liabilities), but of the unemployed money, whether coin or currency, of the community in which they were situated. To the extent of the deposits

representing the proceeds of undrawn loans, or of the proceeds of such as had been drawn and returned to it, and which were likely to remain undrawn, a corresponding amount of merchandise would be without the appropriate means for distribution, and for such want would be unavailable both to the producers and the public. In a community in which the notes and credits of Banks had been used as currency, the precious metals could not be immediately provided to make good the sudden withdrawal of the former. They could only be provided by a sale of merchandise, which in the case supposed, for want of currency in some form, might be impossible. In ratio therefore, as the proceeds of loans were not drawn, or as the notes issued were returned to them on deposit, the Banks could discount new bills in manner described. The notes and credits issued in the discount of new bills would be used in the payment of the old ones first falling due; and, as these again returned to the Banks, they would again be reissued, so that the currency at all times would tend to approximate the amount of merchandise entering into consumption. The Banks could therefore increase their loans, and with them their interest-bearing securities, and their profits, in ratio to the amount of their deposits that were likely to be permanent. These, in fact, would represent a corresponding amount of capital for which its owners, the depositors, had no immediate use, and of which, until wanted by them, they would allow the Banks to have the benefit. The amount so held in such countries as the United States and Great Britain is enormous, as every individual, no matter how small his means, will always seek to hold a portion of them in reserve, and as reserves must be held, and permanently, by all parties engaged in industrial and commercial operations in ratio to their magnitude. In this way, through the action of the Banks, all the capital of a community unemployed by its owners, and proper to be symbolized, is rendered available for consumption and production. In no other way than that described could it be made available. At the same time, but for the use by the Banks of the capital for which its owners had no immediate use, there could be no adequate motive to their establishment; as they could not on loans of their own means, their expenses being deducted, make a profit equal to the ordinary rates of interest.

From what has preceded, it will be seen that there is no dif

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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.

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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

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