gold and notes now gather in the hands of our imaginary banker. What was done by one depositor is done by others, until they become so numerous a body, that a considerable portion of their payments are made to one another'. Such cheques, when presented, are no longer paid. If the separate deposits were kept in separate boxes, we may suppose that the banker takes the sum indicated by the cheque out of the hoard against which it is drawn, and puts it into that of him who should receive it. But his real method is simpler. He deducts the amount drawn from the credit of the drawer, in his own books, and adds it to that of the receiver. Perhaps the drawer of the cheque paid his butcher's bill by the operation. It is complete and final. The beef and mutton absolutely pass, without the passage of gold or notes, merely by an act of bookkeeping. This is evidently a far more important step than the mere use of the cheque when it was always presented for money. The simple book credit is, as it were, a new form of the money power, like the external gold and notes, constantly in movement, but capable of infinitely more delicate manipulation. It pays without weighing or counting, or danger of loss; and when exchanges are carried on upon the most gigantic scale, still with the same facility and rapidity.

Bank Credits from Loans.

As yet, however, we have not got our third element fully extricated. For this book credit does actually exist as an addition to the mass of gold and notes; and, hitherto, we have only seen it acting as their convenient substitute. The final stage is reached when the banker, in view of his accumulated notes and gold, lends, by placing in his books the name of some one who has made no deposit, with a definite sum to his credit, as if he were a depositor. The new depositor may, like others, take out part in gold and notes, and leave part of his credit

See Mr. Pennington's Letter at the end of Mr. Tooke's second volume.

to operate by transfer. In any case, there is a new piece of positive capital created, as an addition to the pre-existing stock of absolute paying power. All previous holders of gold and notes and credits could make payments to some definite amount, and now there is yet another person who can pay a definite sum in addition.

This new credit may be called a loan-credit, to distinguish it from credits previously corresponding to notes and gold held dormant. The aggregate of loan-credits, therefore, opened by bankers constitutes a clear addition to the previous stock of money. As the gold lent out of the original bullion deposit hoards rendered the corresponding bullion receipts an addition to the previous aggregate of money, so now the loans made out of deposits represented by credits leave a corresponding amount of those credits operating as a real independent power, when its basis is removed. And just as a large portion of the first loans of deposited gold came back again in new deposits, so we must now conceive the loan-credit opened by the banker as being, in effect, a delivery of the amount in notes and gold to the borrower, and an immediate receiving back of the whole, or a part of the same, as a new deposit. We have now a deposit originating in a loan,- and if such deposits could always be distinguished from the mass of original deposits, the subject would be simpler; but as soon as the borrower makes a payment, by transfer to a depositor-perhaps in payment of salary, or in exchange for goods-the credit assumes the outward garb of an original deposit, because it is held by a depositor who does not possess it by a loan. But the aggregate of new money, or paying power, created by loan credits, is still always a definite and ascertainable quantity, because it must exactly correspond to the loans made by bankers. These loans correctly measure the addition made to the previous aggregate of money; because each of them, if left as credit, is clearly an addition; if transferred as a credit, is also clearly an addition; and if drawn out in cash, must leave some equal amount of deposit credit unpro

C

tected, and therefore is still an addition, by the cash drawn out, to that aggregate out of which cash payments could previously be effected.

Here, then, we have the third element of money, or paying power, in our threefold aggregate fairly eliminated; but the first glance at it is almost enough to repel the attempt to reduce it to any law, for it varies not merely from year to year, but from week to week, and from day to day; the whole outline which marks its upper limit being in one constant and tantalizing play of fluctuation. It varies from day to day, because a banker issues daily new loans on discount, and receives the repayment of old ones on the expiration of the securities on which they were lent. It is a cardinal principle of his art that the loans shall be for short periods, that he may have the gross amount perfectly under his control. He keeps his ship well in hand, as seamen say, by setting exactly as much canvas as he can take in, to the last flutter, if needful, between the moment in which he first sees the storm-cloud, and that in which he is struck by the squall. Sudden and dangerous, indeed, are the squalls to which bankers are sometimes exposed. The vulgar imagine that the great danger is a run for gold in exchange for bank-notes; but the greatest danger is in a run for deposits. The former makes the cash in the reservoir squirt out through pin-holes, the latter opens the floodgates. The banker grants every loan-credit at his peril, for it makes him liable to pay two parties with the same money. As, from the constant intermingling of transactions, each series of such credits becomes in its turn the foundation of a second and even a third series, the delicate structure is continually rising, while its base of cash is growing smaller, until its fragile proportions, contrasting with the vast weight of the transactions which it sustains-as in the case of the Crystal Palace itself-mingle awe with the admiration of the spectator. Light as it looks, however, it is equal to its burden, in all ordinary times; and, in extraordinary, we have seen how, with facility and speed, its upper stories can be made to shoot down

into the lower, like the tubes of a telescope, until only the more solid walls are left standing in front of the danger. It is a true fairy wonder; and of all the social architects who have to deal only with material interests, the bankers are those whose art gives the most distinct sense of the ascendancy over matter of a spiritual power.

London Private Banks form one Bank.

The private bankers of London, in consequence of the institution called the clearing-house, must be considered, with regard to the power of payment by book-transfer, as all one bank. In the clearing-house three millions are paid daily in this way, with a small sum in gold and notes for balances. Thus the most momentous alterations in property are effected— corn, sugar, wines, cottons, woollens, hardware, shares, funds, ships, houses, the solid land itself, all passing to new owners by a line or two from the pen of a book-keeper. What a mechanism is this, and, as human beings are its parts, what a moral discipline there is in it! What clearness of thought, exact subordination and obedience, patience, punctuality, fidelity are indispensable, to prevent it from playing off into irretrievable confusion! We are so accustomed to this beautiful order, that we never imagine what its disruption would be, though in truth an opening of the earth beneath our feet, and an upboiling of the nether abyss, would scarcely spread a wider devastation; but happily its harmonious revolution goes on from year to year with unbroken continuity, "unhasting, unresting," like the spheres in their silent path.

The bankers, then, by their loans, are constantly manufacturing this third element of money, pouring it out now with a full, now with a sparing hand, and watching always the rise and fall of the level within, according as the outgoing or incoming stream is of greater volume. The quantity of bankmade money thus kept at the disposal of the public is evidently at any moment equal to the difference between the

amount of the deposits and the amount of the cash held in reserve to meet them. At some period or other there were gold or notes appropriated, as it were, to each deposit, and such as are now no longer in their place must have been taken out on loan. It is indeed the old story of the bullion taken away from behind the bullion receipts, except that here it is taken not from the bottom of the hoard, but from the top and without concealment. Yet this must be received with some grains of allowance, for bankers are shy in talking of the amount of their reserves, imagining a little mystery useful, and apt to be haunted with the image of a rush of depositors. But my belief is, that the bankers of Great Britain, as a body, excluding for special reasons the Bank of England, do not keep by them, in cash, one-tenth of their deposits; yet those deposits, judging from Mr. Newmarch's estimation of discounts, must be more than one hundred millions sterling, operating, in addition to the bank-notes and gold outside the banks, as MONEY, whether capital or income'.

Mr. Newmarch's Estimate of Discounts.

Mr. Newmarch's estimate of bills (inland and foreign) under discount at one time in Great Britain, including London, is this:

1 This one item of information, the aggregate of banker's deposits, which might have been ascertained without alarm to the most timid, and which would have outweighed in value all the crude theories that swell the blue-books, was not ascertained