Page:Treatise on Currency and Banking.djvu/208

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lions would be necessary, and not merely the absorption of the notes, which might have been in the mean time added to the mass in circulation.

Again, suppose at a period when the currency was in a sound condition, money being neither too abundant nor too scarce, the banks of New York should, from some unfounded apprehensions, all at once reduce their loans to the extent of two millions of dollars, by which means their debtors should be obliged to raise funds in the market from that class of persons who had deposites in the banks, and who would of course draw checks upon them, and thus extinguish the liabilities of the banks existing in the form of deposites, to the extent of two millions. Would the currency of New York be contracted? Would money be scarcer than before? Would competitors in the market with ready cash in hand be diminished? A negative answer could hardly be given to either of these questions, and hence the conclusion would seem to be self-evident, that deposites form a part of the currency.

Indeed, it is through the deposites of banks that the most powerful action is exercised upon the currency, where contractions are resorted to. Debtors who are called upon to pay up large sums, would find it very difficult to procure them, if they were obliged to hunt up bank notes, scattered all over the country; and if a city bank were fearful of being hard pressed, she would have very little concern about her notes, if she could only get clear of the demands of her depositors. Deposites, in fact, in large commercial cities, constitute the largest portion of the currency. In the city of New York, on the 1st of June, 1837, shortly after the stoppage of specie payments, the amount of notes in circulation outstanding for all the city banks, was $5,283,950, whilst the amount of deposites, public and private, was $15,843,171.

By the contraction which subsequently took place, the notes in circulation were reduced, by the 1st of