REMARKS ON SPECIE RESERVES AND BANK DEPOSITS. 913 
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rency. When credit is good, — that is, when the money-market is said to be easy, — 
every merchant who wishes to extend his business can make purchases, almost to an 
unlimited extent, without borrowing or paying any money whatever. And the effect 
of the purchases thus made, added to the force of his example, is to raise prices. 
Two merchants, A and B, for instance, can buy merchandise to any extent on six or 
eight months’ credit; and the effect of their heavy purchases will be, within a week, 
perhaps within a day, to induce C and D also to buy largely on equally prolonged 
credit, and thus to raise prices still higher. This enhanced price may tempt A and B 
to sell long before their own term of credit has expired, and on credit equally pro- 
longed, to other parties; and then, considering the profits on this transaction as 
already accrued, to make other purchases on time, and to a larger amount, of other 
kinds of merchandise. The process may be carried on indefinitely by E, F, G, and 
so on, through all the letters of the alphabet. In this way, before six months have 
expired from the date of the original purchase, that is, before the first note has become 
due, and thereby first created an occasion for the use of any money whatever, a huge 
pile of indebtedness may have been created, and prices raised to that giddy elevation 
whence all experience shows that a speedy and precipitous fall is inevitable. 
7. The notes are finally paid, if paid at all, to a great extent, without the use of any 
money whatever, but merely by the transfer of deposits on the air eibi zu from the 
credit of one person to that of another.* 
* Robert Slater, of the firm of Morrison, Dillon, & Co., London, “one of the largest houses, as warehouse- 
men, in the country," testified before a Committee of the House of Commons : — * Our cash operations extend 
over several millions [of pounds] a year.” He made an analysis of the operations of this firm in 1856, in 
order to lay before the Committee * very strong evidence of the small proportion which the Bank of England 
notes bear to the general amount of the circulation of the kingdom. We received, in the course of the year 
1856, certain moneys reduced to the total of £ 1,000,000 in the following proportions: in bankers’ drafts and 
mercantile bills of exchange, payable after date, £533,596 ; in checks on bankers payable on demand, 
£357,715; in country bankers’ notes, £ 9,627 ; these three sums amount together to £ 900,938. We received 
in Bank of England notes, for the same period, £ 68,554; in gold, £ 28,089 ; in silver and copper, £ 1,486 ; 
in post-office orders, £ 933; these four sums amount together to £ 99,062, being with the previous £ 900,938, 
formed of bankers' drafts, of checks, of country bank-notes, and those other matters, the £ 1,000,000 of receipts 
received by our house. We paid by bills of exchange payable after date, £ 302,674; by cliecks upon a 
London banker, £ 663,672; together, £ 966,846; we paid by Bank of England notes, £ 22,743; by gold, 
£9,427; by silver and copper, £1,484; being £33,654, against £ 966,346 by bills of exchange and checks, 
making together the sum of £ 1,000,000 of payments.” 
“Under a normal state of things, when there is nothing to shake confidence, I think you state that the bank- 
note is scarcely perceptibly required, but that balances are paid through those various economizing modes 
which have suggested themselves of late years in the shape of checks and bills of exchange ? — Precisely so; 
