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

things, have never been able to make even the first successful start. The moment they have attempted to issue notes and credits as currency, these have always been presented for immediate redemption in coin. As they can pay neither merchandise nor coin, they have no other alternative but to go into immediate liquidation.

That a currency may at all times be convertible, the means for its redemption must always be provided previous to its issue, not by the Bank, but by the public, the producers of merchandise. With such provision, the currency from the moment of its issue would take care of itself. The attempt to make such provision after issue would be certain to defeat itself. When merchandise is provided, the necessities of consumers compel them to purchase it, piece by piece, for consumption. Their necessities and purchases will have the effect to maintain its price, so as to render it adequate to the discharge of the currency issued against it. But neither real estate nor securities can be taken for consumption, piece by piece; they must be sold in gross, or not at all. A proposition, or a necessity, for the sale of a large amount of either would be naturally met by the public, by a combination not to purchase except at very low rates, or by a shyness growing out of an apprehension that sales in large amounts would necessarily tend to bring down prices by creating a disturbance in the money market. The result would be that property symbolized at a fair value would not, under the peremptory sales that would be necessary, bring half that at which it was symbolized the loss sustained by the Bank in its first operations would be usually sufficient to drive it into liquidation. The world has seen no end to attempts to establish Banks upon capital other than coin and merchandise; but all such, without exception, have proved disastrous failures.

For similar reasons, bills given for merchandise not in demand for consumption are no better subjects for discount than bills given in the purchase of real estate or securities. Such merchandise, since it could not be sold, would not retire the notes and credits issued in the discount of the bills representing it. These would have to be taken in by paying out the corresponding amount of coin. It is in the discount of notes given for unsalable merchandise that Banks make by far the