378 REMARKS ON SPECIE RESERVES AND BANK DEPOSITS. 
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property (merchandise or real estate) than they really own, and therefore having a 
succession of notes to pay; the latter holding much less property than they own, and 
therefore having a succession of notes to be paid to them. In easy and prosperous 
times, when credit is good, the creditor class, unwilling, of course, that their funds 
should lie idle on deposit without yielding interest, lend them freely to the debtor 
class, receiving notes “ on time," as the phrase is, — that is, at two, four, or six months. 
The nature of the loan is, that a deposit, (that is, a debt due on demand from a bank, 
and therefore just as available as specie in making purchases or paying debts,) is ex- 
changed for a note on time from an individual, with or without collateral security or 
indorsement. This, indeed, is the nature of all large loans or payments; they are 
simply transfers of indebtedness,— exchanges of bank debt, payable on demand, for 
private debt, due some time hence ; or vice versa. Whether the bank debt (the debt due 
from the bank) is in the form of a deposit or a bank-bill, is of no importance, as one is 
readily exchanged for the other. The creditor class lending freely, the whole body of 
the deposits is kept in a state of activity, being rapidly transferred from one person's 
credit to another, and thus cancelling without difficulty any amount of indebtedness 
within the week. The debtor class, thus encouraged, make larger purchases, prices 
rise, the creditor class with characteristic caution sell, being tempted by these prices, 
and thus the amount of debt due to them is increased. But the tide, having reached 
its flood, begins to ebb. Distrust begins and gains ground. The creditor class are less 
willing to exchange immediate bank debt for prospective private debt, even when tempted 
by high rates of interest. The deposits, instead of circulating freely, now move slug- 
gishly, as they accumulate to the credit of the creditor class, who are now loath to lend 
them. Ostensibly, the condition of the banks is about the same as before. ‘There is 
a trifling increase of the “loans and discounts," corresponding to a trifling increase of 
the “circulation,” the difference in either case being too slight to affect the market 
perceptibly. The deposits also remain at about the same amount, or are somewhat 
increased. But there is this great difference, which does not appear on the face of the 
accounts, but is the real index of the whole difficulty. The eighteen or twenty millions 
of deposits, instead of circulating freely, so as to wipe off two or three hundred millions 
of indebtedness every week, are now accumulating in sluggish masses to the credit of 
the creditor class; and distress of the debtor class is the inevitable result. 
Specie reserves, and other legislative precautions against over-trading, affect at best 
the security only of the immediate bank debt, which nobody distrusts, and which needs 
no bolstering. The real evil consists in the excessive amount of what I have called 
private prospective indebtedness, which the action of the banks has done nothing to 
