316 REMARKS ON SPECIE RESERVES AND BANK DEPOSITS. 
banks had sense and resolution enough to break this law, and they were never even 
blamed for the transgression. In short, to fix:an arbitrary limit to a specie reserve, 
below which it shall not be reduced under any circumstances, is about as reasonable as 
it would be to attempt to provide against a famine by enacting that the bakers should 
always keep on hand a reserve of flour, enough at least for a fortnight's consumption ; 
which is probably no more than what they do of their own accord, when no scarcity is 
apprehended. But if a famine should actually happen, I apprehend the fortnight's 
supply would find its way to the oven in spite of the law ; and with good reason, for 
before it was exhausted, the ships or the cars would bring another supply. If the 
legislature must meddle at all, the law ought to establish a specie reserve on the prin- 
ciple of a sliding scale, requiring the reserve to be, say twenty per cent of the aggregate 
immediate liabilities, whenever the banks are willing to discount at as low a rate as six 
per cent, and allowing two per cent to be abated from this reserve for every addition of 
one per cent to the rate of interest. Under such a law, the reserve would be exhausted 
only when the rate of interest had risen to sixteen per cent; and when that is the case, 
the banks ought to break, and all payments ought to be stopped, till the panic has 
ceased. 
The course of the discussion has led us incidentally to see how a vast amount of in- 
debtedness is created, and how prices are consequently raised, without any antecedent 
enlargement of the currency, but simply by selling merchandise and real estate on credit. 
And this brings us naturally to another and more difficult problem, — to consider what 
is the real medium of payment when these debts are duly discharged at maturity. The 
question, it should be observed, does not concern the ordinary petty transactions of 
every-day life, in which small purchases and small debts are certainly cancelled by the 
actual payment of money, the coin or bank-bills, however, being immediately used to 
effect a transfer of merchandise or property. We here refer only to the payments of 
` considerable amount, which balance large mercantile transactions, and which take place 
seemingly by the transfer of bits of paper, called checks, and by a few corresponding 
entries on the books of a bank. Money, properly so called, either in the form of specie 
or bank-bills, evidently has no share in cancelling this class of obligations. And it is 
not easy to see how a transfer even of property is effected. Familiar as the actual pro- 
cess is to every one who has had occasion to pay a note at a bank, I know not of any 
treatise or discussion on the subject of the currency in which the rationale of that pro- 
cess has received adequate explanation. But the nature of such transfers must be 
thoroughly understood, before it can be seen how far the regulation of the banks, either 
in the management of their specie reserves or in any other particular, can affect the 
course of mercantile affairs, either to hasten, postpone, or avert a commercial crisis. 
