392 Jones—Relation of Economic Grises to Legislation. 
currency, to a currency exchangeable for gold. 1 This involves 
one of the chief assumptions of the Peel Bank Act; namely, 
that an issuing bank has the power to increase or diminish the 
amount of its issues at pleasure. 
Another assumption contained within this arises likewise 
from the continually emphasized importance upon prices, of fluc¬ 
tuations in the amount of money, whether these be due to the 
settlement of international balances or any other cause. Clearly 
the idea held was that the immediate and full effect'of such sub¬ 
tractions from, or additions to, the currency is immediately 
communicated to all prices. That is to say, all money is con¬ 
ceived to be employed in trade, and to be in constant circulation. 
If gold is shipped from the country, it is drawn from the circu¬ 
lation. 2 The existence of hoards, whether in private hands or 
in banks or other institutions, is entirely left out of considera¬ 
tion. 3 The money accumulated in the vaults of banks can only 
1 “Es ergiebt sich aus der Darstellung der Currencytheorie, dass die- 
selbe ein Ausfiuss der friihern Theorien Recardo’sund des Bullion re¬ 
ports ist. Der Unterschied besteht vornemlich darin,dass die friihern 
Lehren iiber die Wirkung einer Aenderung in der Menge der umlaufen- 
den Noten auf Waarenpreise und Wechselcurse, wahrend diese Noten 
uneinlosbar sind, auf die Zeit iibertragen wurden, wo sie wieder einlos- 
bar waren, also von der Zeit eines uneinlosbaren Papiergeldes auf die 
eines gemischten Geldsystems.” A. Wagner, “Lehre,” p. 99. 
2 “It is universally admitted, by persons acquainted with the monetary 
science, that paper money should be so regulated as to keep the medium 
of exchange, of which it may form a part, in the same state, with re¬ 
spect to amount and to value, in which the medium of exchange would 
exist, were the circulating portion of it purely metallic. Now it is self- 
evident, that if the circulating currency were purely metallic, an ad¬ 
verse exchange causing an exportation of the metals to any given 
amount, would occasion a contraction of the circulating currency to the 
same amount; and that a favorable exchange, causing an importation 
of the metals to any given amount, would cause an expansion of the 
circulating currency to the same amount. Therefore, when the direct¬ 
ors of the Bank of England allow, not their circulation, but their de¬ 
posits, to contract and expand under the influence of the foreign ex¬ 
changes, they depart from the only sound principle upon which paper 
money can be regulated.” Robt. Torrens, “Letter to Lord Melbourne,” 
p. 29. Cf. same work, pp. 39-43, and Tooke, IV, pp. 220-222. 
3 An explanation of the nature of these under a system of metallic 
