i6 



JV. G. Longworthy Taylor 



by a futile en- 

 deavor to 

 make every 

 pound as good 

 as gold. 



Deposit 

 guaranty 

 could not go to 

 the extent of 

 a pledge for 

 every dollar of 

 outstanding 

 deposits. 



within the narrowest limits. The former understood that notes 

 were issued in response to the needs of commerce, whereas the 

 latter looked upon the notes as money. It, therefore, regarded 

 them as a standard of value, whereas the former appreciated 

 them only as a means of circulating goods. 



The Act fell into this error, doubtless, also through the influ- 

 ence of the materialistic reasoning of the economist Ricardo, 

 whose doctrines, correct as they are in many respects, and 

 hedged about with every safeguard against absurdity of conclu- 

 sion, nevertheless gave a wrong turn to analysis of money and 

 credit. Ricardo, in endeavoring to account for the level of 

 prices, had jumped at the apparently obvious conclusion that the 

 contraction of the amount of paper money aifects the level of 

 prices in the same way that it is affected by the similar move- 

 ment of coin.^- Peel's Act, accordingly, sought to make every 

 paper pound in circulation as good as a gold pound. It required 

 that for every pound of paper money, i. e., Bank of England 

 notes, issued, a corresponding pound of gold should be put in 

 reserve. Doubtless the effect of this legislation was to accelerate 

 the use of deposits, since no real note business could be done 

 under legislation of this sort. 



In order to drive this legislation to its logical conclusion, let 

 it be supposed, for instance, in the United States, that a 

 " popular " policy should require the banks to hypothecate with 

 the state a dollar of gold for every dollar of deposits that ap- 

 peared upon their books. Unless some new financial expedient 

 were immediately discovered, whereby business guaranties could 

 continue to be independently made, it is little exaggeration to say 

 that business enterprise would come to a standstill, and that the 

 lawyer would be constrained to make his own shoes, and the 

 shoemaker to plead his own cause, until, at last, the antiquated 

 money system could be resurrected. But it is not probable that 

 any such extravagance will be legislated, for the logic of events 

 is more powerful than that of the street corner. Business must 



^" David Ricardo, Principles of Political Economy and Taxation (E. C. 

 K. Conner, ed.), p. 125. 



130 



