914 REMARKS ON SPECIE RESERVES AND BANK DEPOSITS. 
If there is any force in these considerations, any attempt to avert or palliate the 
evils of a commercial crisis through abridging and strengthening the paper currency, 
by laws requiring the banks to increase their permanent specie reserves, is not only 
futile, but ridiculous. There is no relation between the proposed means and the end. 
We might as well build more school-houses in the hope of lessening the frequency and 
violence of snow-storms. 
But I go farther. Such laws are not merely useless and absurd; they are positively 
injurious. It is a mere truism to say, that a specie reserve can be of no service, except 
it may, on an emergency, be used, or actually applied, to redeem the bills or other 
obligations of the bank. A reserve of fwo millions, which can be paid out, if neces- 
sary, either to redeem bills or to lessen a pressure in the money-market, is surely 
better than a reserve of ten millions confined by law forever within the bank-vaults. 
When the confidence of the community in the currency is shaken, there may be more 
virtue in hard dollars than in paper dollars to allay the panic; but it is not a virtue 
which will sweat through the stone walls and iron doors of a bank-vault or a Sub- 
Treasury. The superstition which hopes to avert a crisis through the mere presence 
of specie in the country, though any wse of it is prohibited by law, is nearly akin 
to the more vulgar superstition which treats a Bible as an amulet, and hangs it 
around the neck, or puts it under the pillow, as a means of driving off the Devil. 
Yet the English law of 1844, separating the department of issue from that of bank- 
ing in the Bank of England, authorizes fourteen millions of circulation based on the 
fourteen millions of government debt owned by the Bank; and forbids the issue of 
bank-notes beyond this amount, except on the basis, and to the extent, of the specie 
reserve in actual possession. The average circulation of the Bank being about twenty 
millions, its ordinary basis is fourteen millions due from the government and six mil- 
lions of specie in the vaults. Time soon showed how much utility there was in this 
vast reserve, which by law could not be touched. In 1847, only three years after the 
passage of the law, there occurred a severe commercial crisis. A failure of the crops 
made it necessary to export gold to buy corn; more bank-notes were required, as is 
usual under such circumstances, the circulation ran up to twenty-one millions, and 
the law then augmented the evil by rendering it necessary to add one million to the 
useless specie reserve. Still the drain of gold continued, and it could be met only 
that is the time when the Bank reserve is always at its highest, because there is the smallest demand for bank- 
notes. : 
“Then the system, as it is generally carried on, is based upon confidence, I presume ? — Entirely so. 
“Theoretically upon gold, but practically upon confidence ? — Chiefly upon confidence.” 
