i6 W. G. Langworthy Taylor 



sponding pound of gold should be put in the reserve. Doubtless 

 the effect of this legislation was to accelerate the use of deposits, 

 since no real credit business could be done under legislation of 

 this sort. 



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

 us suppose, for instance, in this country, that a "popular" policy 

 should require the banksto put up a dollar of gold for every dol- 

 lar of deposits that appeared upon their books. Unless some new 

 financial expedient were immediately discovered whereby busi- 

 ness 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 have to make his own 

 shoes, and the shoemaker would have to plead his own cause, 

 until, at least, the antiquated money system could be resurrected. 

 But is is not probable that any such extravagance will be legis- 

 lated, for the simple fact that the logic of events is more power- 

 ful than the logic of the street corner. Business must have its 

 guaranty, no matter what the politicians, or the legislatures, or 

 the statute books think about the matter. Government guaranty 

 of deposits also is calculated to weaken free competition and 

 hence responsibility in banking. It gives the politician-banker 

 an advantage over the tried, experienced banker, and discourages 

 the latter. 



We must look upon the Bullion Report as an academic produc- 

 tion, and upon Peel's act as an attempt and a beginning of legis- 

 lative reform. It is admitted to have had the good effect of stim- 

 ulating the banking department of the Bank of England to keep 

 a larger reserve in time of crisis, and thus, indirectly, to have 

 brought into greater prominence the difference between circu- 

 lating and guaranty functions. The act also recognized that in- 

 flation comes through credit, although it made the big mistake 

 of thinking that it comes solely from expansion of notes ; for it 

 attempted to prevent crises by restricting the issue of notes alone. 

 The banking department, consequently, was caught with an in- 

 sufficient reserve against deposits several times thereafter, until 

 it learned its lesson from experience. It had little to learn from 

 the act. 



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