Front Page Titles (by Subject) SECTION VIII.: COMMERCIAL CRISES. - A History of Banking in all the Leading Nations, vol. 2 (Great Britain, Russian Empire, Savings-Banks in the U.S.)
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SECTION VIII.: COMMERCIAL CRISES. - Editor of the Journal of Commerce and Commercial Bulletin, A History of Banking in all the Leading Nations, vol. 2 (Great Britain, Russian Empire, Savings-Banks in the U.S.) 
A History of Banking in all the Leading Nations; comprising the United States; Great Britain; Germany; Austro-Hungary; France; Italy; Belgium; Spain; Switzerland; Portugal; Roumania; Russia; Holland; The Scandinavian Nations; Canada; China; Japan; compiled by thirteen authors. Edited by the Editor of the Journal of Commerce and Commercial Bulletin. In Four Volumes. (New York: The Journal of Commerce and Commercial Bulletin, 1896). Vol. 2 A History of Banking in Great Britain, the Russian Empire, and Savings-Banks in the U.S.
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Accommodation Paper—Its Real Danger—Banking Risks of Mutual Accommodation Paper.
IN another part of this work we have explained the scientific and juridical principles and mechanism of solid credit, and shown how it augments the wealth of a country—meaning, by solid credit, that which is actually and punctually redeemed at maturity. But there is a reverse to the medal. If solid, and judiciously used, credit has conduced more to the wealth of the world than all the mines of gold and silver; its abuses, in the hands of incautious and unscrupulous persons, has produced the most terrible calamities of modern times—namely, commercial crises and monetary panics. We have now to contemplate the dark side of the picture, and to show how commercial crises and monetary panics arise; how they are to be dealt with and brought under scientific control, which has hitherto been the opprobrium of economics and of financial statesmanship.
We have shown clearly that all credit is the present right to, or the present value of, a future payment; and so long as the credit is actually redeemed at maturity, by the various methods described in another chapter, the credit is not excessive. But all credit created in excess of the future payment, and which is not fully redeemed at maturity, is excessive. And it is excessive credit which produces all commercial crises; and if they are not properly and judiciously controlled, and are allowed to obtain a certain magnitude and intensity, they are very apt to culminate in monetary panics.
The fact is, that commercial crises are innate in the gigantic system of credit which has grown up in modern times; and if they are not skilfully dealt with, they have a great tendency to develop into monetary panics; but if they are dealt with on the principles which repeated experience and reasoning have suggested, though periodical commercial crises cannot in the nature of things be avoided, yet they may be prevented from developing into monetary panics.
As all traders in modern times trade on credit, it must necessarily be that there are a considerable number of bad speculators among them. They create bills in excess of future profits; and if there were any methed of compelling them to incur and bear the loss at once, there would be comparatively little harm done. A few individuals would suffer, but there would be no general commercial crisis. But traders are not usually very willing to put up with a present loss. They always hope to recoup themselves by future and more fortunate speculations. Hope springs eternal in the human breast. Traders endeavor to acquire a good character with their bankers; and they keep their losses to themselves. They not only create fresh bills, by which they hope to retrieve their former losses, but they manufacture fictitious bills by cross-acceptances amongst each other for the express purpose of extracting fresh funds from their bankers to speculate with. Now, when a trader has established a good reputation with his banker, and is accustomed to have a discount account with him to a certain amount, it is very serious indeed for his banker to stop it. We have already explained that, at the present day, bills of exchange are almost universally paid, not by money, but by discounting fresh bills. If, therefore, a customer has his own acceptances to meet, and his banker refuses to discount fresh bills for him, it means nothing less than instant ruin.
Now a banker may have a very shrewd suspicion that his customer is overtrading; but, as he has no access to his customer’s books, it may be very difficult for him positively to ascertain the fact. And if a banker acts upon insufficient grounds, and without sure cause ruins his customer, he will get himself into very bad odor, and may do himself much injury. Of course, the greater the merchant the more difficult it is to deal with him. And great merchants, who have numerous and powerful connections, can manufacture bills to an incredible extent to cover up losses, and keep themselves afloat by extracting fresh funds from their bankers to speculate with; until, when the final collapse comes, it is found that their assets are almost all eaten away, and left perhaps a shilling or two in the pound to meet the masses of paper.
We must now examine more closely a species of credit which requires great attention; because it is the curse and the bane of commerce, and it has been the chief cause of those frightful commercial crises which recur periodically; and yet, though there can be no doubt that in the majority of cases it is morally fraudulent, it is of so subtle a nature that it defies all powers of legislation to cope with it. We have shown by the exposition of the system of cash credits in Scotland that there is nothing essentially dangerous and fraudulent in creating credit for the purpose of promoting future operations. On the contrary, such credits have been the most powerful method ever devised by the ingenuity of man for promoting the wealth and the prosperity of a country, and have accelerated the wealth and prosperity of Scotland by centuries. A certain species of this credit, however, having been grossly abused by unscrupulous persons for fraudulent purposes, and having produced the most frightful calamities, we must now examine and point out wherein the danger and the fraud of this particular species of credit consists.
When bills of exchange are given in exchange for goods actually purchased at the time, they are often called real bills; and it is often supposed that there is something essentially safe in them; because, as the goods have been received for them, it is supposed the goods are always ready to provide for the payment of the bills, and that only so much credit is created as there are goods to redeem it.
It is the inveterate error of a multitude of persons who will write upon the subject without the slightest knowledge either of mercantile law or of practical business, that the holder of a bill has a title to the goods for which it is given. This pestilent and mischievous delusion appears very strongly in Stanley Jevons. He says:* “What greatly assists a rise of prices started in a period of free investment is the system of credit, on which trade is necessarily conducted. By this system, a trader is not obliged to be the real owner of the goods in which he trades, but may buy freely by giving the promise of payment in, perhaps, three months’ time. Thus, the goods really belong to the holder of his promissory note or bill. * * * Though the merchant does not own the goods, there must be some one to own them, to advance capital, or, as it is said, to discount the bills arising out of the transaction.”
Thus Jevons holds that the merchant who buys goods on credit is not the real owner of them; that the person who holds the bill given for them is their real owner; or the person to whom he transfers it, such as the banker who discounts it, has the real title to the goods in respect of which it is given. But every lawyer and banker in the world would laugh at such ideas. Nothing is more common than for uninformed persons to say that a trader who buys goods on credit trades on borrowed capital. Such an idea, however, is a pure delusion. When a trader buys goods on credit and gives his bill for them, the goods become his actual property just as much as if he had paid for them in money. The bill of exchange is payment for the goods, just as money is. A purchase on credit is just as much a sale or an exchange as a purchase with money. What the trader has to do after having bought goods with his bill is to pay the bill when it becomes due.
Mr. Henry Thornton long ago pointed out the fallacy of supposing that there is any security in real bills because they are given in exchange for goods, or that the holder of the bill has any title to the goods.†
When a wholesale dealer buys a quantity of goods from a merchant on credit, he perhaps sells those goods to fifty different retail dealers, and takes their bill for them. These very goods are sold by the retail dealers, perhaps, to hundreds of their customers, and consumed by them, before the bill given by the wholesale dealer becomes due. How in the name of common sense is the holder of the bill to follow the goods into the hands of hundreds of customers, who will most probably have consumed them before the bill becomes due? How, even, is he to ascertain their names? But, suppose that the wholesale dealer does not divide the goods into parcels and sell them to different dealers, but sells them in a lump to some other single person and takes his bill for them; then a new bill must be created to transfer the goods, and if the same goods are transferred in a lump a dozen different times, a new bill must be created on each transfer. Hence, there will be a dozen bills relating to the very same goods, and perhaps every one of these bills may have been discounted with a banker: which banker has a title to the goods? Every banker in the world would laugh at the idea that he has any title to the goods for which a bill has been given, which he has discounted. Nor have any of the bills any relation to any specific money, such as the purchaser of the goods may receive in payment for them. They are nothing but pure rights of action against the person of the debtor. Every lawyer and every merchant knows that every bill is a separate and independent article of merchandise, exactly like money itself, and that it is bought and sold solely on the belief that the acceptor will have the means of extinguishing it when it becomes due.
Mr. Thornton also points out the fallacy of making a distinction between the security of real bills and accommodation bills, qua accommodation bills. After describing an accommodation bill, he says:
“They agree; inasmuch as each is a discountable article, each has also been created for the purpose of being discounted, and each is perhaps discounted in fact; each therefore serves equally to supply means of speculation to the merchant. So far, moreover, as bills and notes constitute what is called the circulating medium or paper currency of the country and prevent the use of guineas, the fictitious and the real bill are upon an equality, and if the price of commodities be raised in proportion to the quantity of paper currency, the one contributes to that rise exactly in the same manner as the other.”
The fact is, that in a real bill goods have already been purchased wherewith to redeem it; in an accommodation bill goods are to be purchased to redeem it. And if each transaction is equally sound and judicious, there is exactly the same security in the one bill as in the other. In fact, we may say that all commercial credit is of the nature of accommodation paper; because, in this case, a credit is always created for the express purpose of buying goods to redeem it. There is, therefore, clearly nothing in the nature of accommodation paper worse than “real paper,” and when it is carefully used, nothing more dangerous. Cash credits, which have been one of the safest and most profitable parts of Scotch banking, and which have done so much for the prosperity of the country, are all of this nature. They are created, as we have seen, for the express purpose of stimulating future operations out of which the credit is to be redeemed. There is, therefore, nothing more atrocious, vicious and criminal in the one species of paper rather than in the other; or, if there is, it must lie in the difference between has been and is to be.
Nevertheless, as it is indubitably certain that most, if not all, of those commercial crises and monetary panics which have so frequently convulsed nations, have sprung out of this species of paper, it does merit a considerable portion of the obloquy and vituperation which has been heaped upon it. It is, therefore, our duty to investigate the method in which it is applied, and to point out wherein its true danger consists.
The security supposed to reside in real bills, as such, is, as we have seen, exaggerated. But there is at least this to be said for them, that as they only arise out of the real transfers of goods, their number must be limited by the very nature of things. However bad and worthless they may be individually, they cannot be multiplied beyond a certain limit. There is, therefore, a limit to the calamities they can cause. But we shall show that with accommodation paper the limits of disaster are immensely and indefinitely increased, frequently involving in utter ruin all who are brought within their vortex.
THE REAL DANGER OF ACCOMMODATION PAPER.
We must now explain wherein the difference between real and accommodation paper consists, and wherein the danger of accommodation paper lies. Suppose that a manufacturer or wholesale dealer has sold goods to ten customers, and received ten bona fide trade bills for them, he discounts these ten bills with his banker. The ten acceptors of these bills having received value for them, are the principal debtors to the bank, and are bound to meet them under the penalty of commercial ruin. The bank has their names as acceptors or real principal debtors on the bills, and its own customer as security on each of them. The bank also keeps a certain balance of its customer’s in its hands, proportionate to the discount allowed. Even under the best of circumstances, an acceptor may fail to meet his bill. The banker then debits his customer’s account with the bill and gives it to him back. The drawer has an action against the acceptor, because it is a real debt due to him. If there should not be enough, the customer is called upon to pay the difference. If the worst comes to the worst, and its customer fails, the bank can pursue its remedy against the estates of both parties, without in any way affecting the position of the other nine acceptors, who, of course, are still bound to meet their own bills.
In the case of accommodation bills there are very material differences. To the eye of the banker there is no visible difference between real and accommodation bills. They are, nevertheless, very different, and it is in these differences that the real danger of accommodation paper consists. In accommodation bills, the person for whose accommodation the drawing, indorsing or accepting, as the case may be, is done, is bound to provide the funds to meet the bill, or to indemnify the person who gives him his name. In a real bill the acceptor is the principal debtor, who is bound to provide funds to meet the bill, and the drawer is a mere surety. In the most usual form of accommodation, that of an acceptance, the drawer is the real principal debtor, who has to provide funds to meet the bill, and the acceptor is a mere surety, and if he is called upon to meet the bill he is entitled to sue the drawer, as the principal debtor, for the amount. Now, suppose as before, A gets ten of his friends to accommodate him with their names as acceptors, and discounts these bills with his banker, it is A’s duty to provide funds to meet every one of the ten bills. There is, in fact, only one real principal debtor and ten sureties. Now, these ten accommodation acceptors are ignorant of each other’s proceedings. They only gave their names to the drawer on the express understanding that they were not to be called upon to meet their bill; and, accordingly, they make no provision to do so. If any one of them is called upon to meet their bill, he has an immediate remedy against the drawer. In the case of real bills, then, the bank has ten real principal debtors, who would each take care to meet his own acceptance, and only one surety. In the case of accommodation bills, the bank has only one real principal debtor to meet the acceptances of ten. Thus, there is only one real principal debtor and ten sureties. Furthermore, if one of ten real acceptors fails to meet his bill, the bank can safely press the drawer, because it will not affect the position of the other nine acceptors. But if the drawer of the accommodation bills fails to meet any one of the ten acceptances, and the bank suddenly discovers that it is an accommodation bill, and it is under large advances to the drawer, it dare not for its own safety press the acceptor, because he will of course have immediate recourse against the drawer as his debtor, and the whole fabric will probably tumble down like a house of cards. Hence, the chances of disaster are much greater when there is only one person to meet the engagements of ten, than when there are ten persons, each bound to meet his own acceptance.
The real danger to a bank, then, in being led into discounting accommodation paper is that the position of principal and surety is reversed. It is deceived as to who the real debtor is and who the surety is, being precisely the reverse to what they appear to be, which makes a very great difference in the security of the holder of the bills. In fact, the parties are not governed by the contract visible on the face of the bills, which the banker believes in; but by a latent contract, collateral to the bills, of which he knows nothing. To advance money by way of cash credit, or by loan with security, is quite a different affair; because the bank then knows exactly what it is doing; and as soon as anything occurs amiss, it knows the remedy to be adopted. Moreover, it never permits the advance to exceed a certain definite limit; but it never can tell to what lengths it may be inveigled into in discounting accommodation paper until some commercial reverse happens, when it may discover that its customer has been carrying on some great speculative operation with capital borrowed from it alone. This is the rationale of accommodation paper pure and simple.
We have now to examine a species of accommodation paper still more subtle and still more dangerous; and this because, though it is really and in its very nature accommodation paper, yet it is not so in technical jurisprudence.
MUTUAL ACCOMMODATION PAPER—ITS DANGER TO A BANK.
We have shown that the real genuine distinction between real and accommodation paper is, that real paper is based upon a simultaneous transfer of goods, the proceeds of which are expected to redeem the bill at maturity; and in accommodation paper, bills are created, not based upon any past or simultaneous transfer of goods, but for the express purpose of purchasing goods in the future to redeem the bills. If these two species of transactions are done with equal care and judgment, and with the full knowledge of all parties of the real nature of the transaction, there is nothing more dangerous or improper in one species of paper than in the other. We have now to deal with a species of paper which is in its real nature accommodation paper, because it consists of paper not founded on any past or simultaneous transfer of goods, but consists of paper created for the express purpose of purchasing goods after it has been created; but yet in jurisprudence it is not accommodation paper, because it is held to be given for good and valuable consideration; and therefore, though in very many cases it is a moral fraud, yet it is not a legal fraud; and it is to this species of paper that most of the great commercial crises are due. We have now to explain how very much more dangerous to a bank this species of paper is than the worst calamities which can happen from real paper.
We have already pointed out the very common error that all bills of exchange are paid in money. Bills in modern usage are very seldom paid in actual money; only in a very few isolated instances; they are paid by discounting fresh bills. Thus, in ordinary times, debts are always paid by creating new debts. No doubt, if the banker refuses to discount the new bills, the customer must discharge his bills in money. But then no trader ever expects to have to do that. He has usually a fixed discount limit, and if he brings good bills he has little less than an absolute right to have them discounted. And if the banker suddenly calls upon him to meet his bills in money, it might oblige him to sell his goods at a great sacrifice, or might cause his ruin. However, it is always supposed that the bills discounted are good ones; that is, they could be paid in money if required. Thus, though in common practice very few bills are really ever paid in money, it is manifest that the whole stability of the bank depends upon the last bills discounted being good ones. Now, suppose that a customer for a considerable time brings good bills to his banker and acquires a good character with him, and so throws him off his guard. Owing, perhaps, to some temporary embarrassment, or wishing to push his speculations, he goes to some of his friends, and gets them to accept bills without having any property to meet them. He then takes these accommodation bills to his banker. The banker, trusting to his good character, discounts the bills. In course of time these accommodation bills must be met, and the way he does it is to create fresh similar bills. The drawer may be speculating in trade and losing money every day. But his bills must be met; and there is no other way of meeting them but by constantly creating fresh accommodation bills. By this means the customer may extract indefinite sums from his banker, and give him in return—so many bits of paper. Now, when discounts are low, and times are prosperous, this system may go on for many years. But at last a crisis comes. The money market becomes “tight.” Bankers not only raise the rate of discount, but they refuse to discount so freely as before. They contract their issues. The accommodation bills are in the bank, and they must be met. But if the banker refuses to discount fresh bills, they must be met in money. But all the property the speculators may have had may have been lost twenty times over; so when the crisis comes they have nothing to turn into money. Directly the banker refuses to meet his customer’s bills by means of his own money, he wakes to the pleasant discovery that, in return for the money he has paid, he has got so many pieces of paper! This is the rationale of accommodation paper; and we see how entirely it differs from real paper. Because with real paper and bona fide customers, though losses may come, yet directly the loss occurs there is an end of it. But with accommodation paper, the prospect of a loss is the very cause of a greater one being made; and so on in an ever widening circle, until the canker may eat into the banker’s assets to any extent almost.
It is also clear that if a trader, having got a good character and a high position in commerce, may do so much mischief to a single banker, his capacity for mischief is vastly increased if, from his high position and old standing, he is able to discount with several banks, for then he is able to diminish greatly the chances of detection.
From these accommodation bills to forged bills there is but one step. It is but a thin line of division between drawing upon a man who is notoriously unable to pay, and drawing upon a person who does not exist at all, or forging an acceptance. In practical morality, and in its practical effects, there is none. Traders do not even take the trouble to get a beggar to write his name on their bills, but they invent one. The case of traders in a large way of business, dealing with a vast number of small country connections, affords great facilities for such rogueries. They begin by establishing a good character for their bills. Their business gradually increases. Their connections, as they say, gradually extend all over the kingdom. The banker, satisfied with the regularity of the account, cannot take the trouble of sending down to inquire into the acceptor of every small bill. The circle gradually enlarges, until some fine morning the whole affair blows up. The ingenuity sometimes exercised by traders in carrying out such a system is absolutely marvellous.
It is in times of speculation in large commodities that accommodation paper is peculiarly rife. In a great failure of the harvest, when great importations were required, and it was expected that prices would rise very high, every corn merchant wanted to buy as much as possible. But if no real sales had taken place, there could be real trade bills. They therefore proceeded to manufacture them in order to extract funds from bankers to speculate with. No banker in his senses would actually advance money for them to speculate with, with his eyes open. Nevertheless they must have funds. This they did by cross-acceptances. One merchant drew on another, who accepted it; he then in turn drew upon his drawer, who accepted in his turn. They then went and discounted these cross-acceptances with as many bankers as possible, in as many different parts of the country as possible, so that their proceedings might not come too much under the notice of any particular bank. In the Crimean war there was a great and sudden demand for shipping; an enormous amount of accommodation paper was manufactured by the Liverpool ship owners and discounted all over the kingdom. The results were frightfully disastrous.
Whenever great speculation in commodities may take place, again the same things will recur. And the quantities of accommodation paper manufactured on such occasions is something astonishing. But this paper is discounted by banks creating fresh credits in the form of deposits. So, these deposits swell up; and they are only so many bank notes in disguise; and then the public holds up its hands in astonishment at the vast sums the banks have to trade with; whereas it is not solid money at all, but only paper. But this immense augmentation of the circulating medium, or currency, raises prices all round. The insurmountable objection, therefore, to this species of paper is the dangerous and boundless facility it affords for raising money for speculative purposes. And there is much reason to fear that this pernicious system prevails to a much greater extent than is commonly supposed. Even in quiet times it has been said that it is surmised that one-fourth of the paper in circulation is accommodation paper; and in times of great speculation the proportion is far greater than that.
The Legislature has imposed rigid limits on the issues of banks, and many persons think that it might be possible to curb the creation of this pestilent kind of paper by law. But, unfortunately, such a thing is not possible. The difficulty consists in determining what is really accommodation paper. As a matter of economics, all these cross-acceptances are pure accommodation paper; but they are not so in jurisprudence.
The whole question turns on the consideration. An accommodation bill in law is a bill to which the drawer, acceptor or endorser, as the case may be, puts his name without consideration for the purpose of benefiting or accommodating some other party, who is to provide the funds to meet the bill when due. But the consideration may be of many sorts. It does not by any means necessarily imply a sale of goods at the time. Moreover, a bill may be an accommodation bill at the time it is created; but if any consideration is given for it during the period of its currency, it ceases to be an accommodation bill. Moreover, the consideration may be of many sorts. If A draws a bill upon B, who accepts it for A’s accommodation for the express purpose of enabling him to get it discounted by a bank, that is a pure accommodation bill. But if B draws an exactly similar bill upon A, who accepts it for the accommodation of B, to enable him to get it discounted by a bank, then neither of the bills is an accommodation bill, but they are each of them given for a good consideration. To an unlearned reader this may seem somewhat strange doctrine: but it is nevertheless firmly established law.
This doctrine, which is quite unanswerable, shows how impossible it is to deal legislatively with this kind of accommodation paper. At least they must be very poor rogues who cannot manufacture any amount of bona fide bills they please. Two ragamuffins have only to get as many bills as they please—if they can only pay for the stamps. One engages to pay £1000 to the order of the other. That would be an accommodation bill. The second then engages to pay £1000 to the order of the first. These are no longer accommodation bills; but are two good bona fide bills; each given for a good consideration. If two such bills are good, then two thousand or any larger number are equally good. Bankers would look askance at such paper; but Westminster Hall declares them all to be bona fide bills given for a good consideration. Stated in the above form, the doctrine may appear somewhat startling to some. But when we consider the principle of the case, and not the accidental circumstance that the two persons who may do it are insolvent, the difficulty disappears; for it is just what happens every day in banking. It is quite common for a banker to discount the simple promissory note of his customer. The note given by the customer is the consideration for the deposit, credit or right of action created by the banker; and the right of action or deposit created by the banker is the consideration given to purchase the note of the customer. Each, therefore, is the consideration for the other. Each party gives value to the other. It is precisely the same in principle in the other case. If the issuers of the bills are able to purchase goods with them, they may be paid off at maturity. If they cannot do so, the re-exchange of the securities is the mutual payment of each debt; precisely in the same manner as when two bankers exchange notes, or when a merchant pays his acceptance to a banker in the banker’s own notes. The two contracts are extinguished by compensation. The accident that both the creators of the bills are insolvent does not affect the juridical principles of the case.
Now, in times of great speculation, these cross-acceptances are manufactured to an enormous extent among merchants. And the more cross-acceptances they can manufacture and get discounted by bankers, the more funds the adventurers have to speculate with. But such things are always sure to be overdone. As soon as any new and extensive market is suddenly opened up, multitudes of speculators are sure to rush in and create vast amounts of paper which can never be redeemed. And when this is done on a sufficiently large scale, a commercial crisis is produced. And if this commercial crisis is not properly and judiciously met, and it reaches a certain degree of intensity, it produces a monetary panic in which merchants and bankers fall together. All commercial crises, therefore, originate in the overcreation of credit, and this is innate in the modern system of credit.
Suppose that at any time the commercial world started with a perfectly clean slate. When such multitudes of persons are trading on credit, it must inevitably happen that a considerable number will speculate unsuccessfully and create an excess of credit, which cannot be redeemed by fair means. All excess of credit may be considered as so much virus or poison in the body commercial. However, by various tricks and devices known to traders, they can keep themselves afloat many years after they are utterly insolvent; and thus the poison constantly accumulates. Then perhaps a fever of speculation takes place, giving rise to the creation of vast masses of speculative paper; and then the poison, having accumulated to a sufficient extent, bursts forth in a tumor, or an abscess, called a commercial crisis. Now, it is clear that these things cannot take place in a day; it takes a certain time for a sufficient amount of excessive credit to be generated and accumulate in the body commercial to produce a commercial crisis. During the last 130 years, in which the credit system has attained its gigantic development, a commercial crisis has usually returned in periods of ten years, or thereabouts, and sometimes oftener. But on each occasion the circumstances which brought it about are perfectly well known. And because the spots on the sun’s disc have also a period somewhat approaching to ten years, it gave rise to the Bedlamite craze of Stanley Jevons that commercial crises and monetary panics are due to spots on the sun’s disc and conjunction of the planets!
One cannot fail also to be surprised that Sir Robert Peel, with all his long and extensive experience, should have conceived the idea that all commercial crises originate in excessive issues of bank notes, and that if the quantity of notes could only be restricted to the quantity of gold there would be if there were no notes, commercial crises would be prevented. Excessive issues of notes have, no doubt, in many cases fostered and aggravated commercial crises; but they do not originate with bankers. They always originate with the mercantile community; and no restrictions on the issues of banks can, by any possibility, prevent their occurrence, as will be shown in the following chapter.
[* ] Investigations in Currency and Finance, p. 31.
[† ] Essay on Paper Credit, p. 30.