REMARKS ON SPECIE RESERVES AND BANK DEPOSITS. 381 
or, in other words, to enlarge the amount of deposits to his own credit — made him 
refuse the required loan to A, which might have saved him from failure, and thereby 
averted the failure of B, C, and D. Thus the capitalist, by refusing to make one loan 
on what he considers as doubtful security, may cause himself to lose twice as much 
through the subsequent failures which are thus necessitated. He can foresee this 
.result, and act accordingly, if the chain of connection be only a short one. Tf, for 
instance, by lending $10,000 to A, he can see that it will enable A to pay B a note for 
_ $15,000, and thereby B will be enabled to pay $$ 20,000 to himself, a regard for his 
own interest will induce him to make the loan, though on what he would otherwise 
regard as insufficient security. What are called “forced renewals” of a note are suf- 
ficiently common, and are of precisely this: character. But if the chain of connection 
be a long one, extending through many persons, being unable to follow it, he is fearful 
that, by making this doubtful loan, he will only enable B, C, D, E, &c. to pay their 
notes to other capitalists, so that all the benefit will acerue to them, and the only loss 
will be his own. 
Yet nothing can be plainer than that, if he and all other creditor capitalists were 
willing to incur this hazard, — acting in truth on the principles of a mutual insurance 
company, — if they would lend, during a pressure in the money market, to the same 
amount and on the same security which would satisfy them in prosperous times, — 
then all unnecessary failures would be averted, and both the debtor and creditor classes 
would be equally benefited. Suppose, for instance, there were only three creditor cap- 
italists, X, Y, and Z, and only six debtors, whom we will designate by the first six 
letters of the alphabet. If X would lend to A and B, and thereby enable them to pay 
Y and Z; if Y would lend to C and D, and thereby enable them to pay X and Z; and 
if Z would lend to E and F, and thereby enable them to pay X and Y ; — the pressure 
and the panic would be greatly alleviated, for no failures could occur except of persons 
who could not offer reasonable security for loans, — that is, whose debts really exceeded 
their assets. And these ought to fail; a moderate pressure in the money market, by 
winnowing such insolvents out of the trading community, would be a benefit rather 
than an injury to the whole number. 
It is evident, from this analysis, that an association of all, or a greater part, of the 
creditor capitalists might do with perfect impunity what no one of them could ac- 
complish without great hazard and loss. They might so far diminish the pressure and 
panic, that not a single merchant would be driven into insolvency by it except his un- 
doubted means were really smaller than his liabilities. All their deposits in the various 
banks being thrown into à common fund to the credit of this association, loans from 
